17December2008

Bernard Lawrence Madoff FraudulenT
In what could be the biggest Ponzi scam of all time, Bernard L. Madoff got arrested on 11thDecember2008. He was amongst the most active in NASDAQ and served as its chairman of the board of directors, and on its board of governors. A Ponzi scheme is a fraudulent investment that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business.
Madoff's fraud may involve up to $50 billion in cash and affect many financial institutions, charities, funds, funds of funds of the world.
Madoff had a remarkable track record of success year after year. A hedge fund run by Madoff described its strategy as focused on shares in the S&P index, averaged a 10.5 percent annual return over the past 17 years. In November 2008, amid a general market collapse, the fund reported that it was up 5.6 percent that month, while the S&P 500-stock index fell 38 percent.
Hedge funds typically hold their portfolio at a securities firm (typically a major bank or brokerage) whereas Madoff's firm was its own broker-dealer and supposedly processed all its trades. Although Madoff was a pioneer of electronic trading, he refused to provide his clients online access to their accounts. He sent out accounting statements by mail, whereas most hedge funds statements and allowed them to be downloaded via computer for easier analysis by investors.

Satyam Maytas
Satyam board pushed a deal to buy Maytas Infrastructure and Maytas Properties, spending $1.6 bn from cash rich Satyam systems. Satyam founder and Chairman B Ramalinga Raju and other insiders hold 36 percent in Maytas Infra and 35 percent in Maytas Properties. Analysts questioned the motives of Satyam's top executives, saying there was a potential conflict of interest because they hold stakes in both companies. This was severely criticised causing Satyam ADR to fell by 55% (ADR: Stock of Indian Company listed in American Exchange). Finally the board bowed to investor pressure and canceled plans to spend $1.6 billion to buy two builders.
The acquisitions made little sense at a time when technology outsourcing companies are preserving cash to help weather the global economic slowdown. Considering there are no synergies that could boost buying of realty sector industries by IT company. It would be interesting to see if at all Satyam may win back the confidence of investors.