Visa Europe now tries to add a layer of security for all those who are paranoid / terrified about using their credit card for online purchases. They have announced the commercial launch of their new credit card which features an inbuilt 12 button keypad, a battery designed to last three years and an alphanumeric digital display which generates ever-changing unique passwords each time you use the card.

Called Visa CodeSure, it  is designed to work on any Visa debit, credit, prepaid or commercial card and has been approved for use in the following services:

• PIN generated one-time-passcode for Verified by Visa payments at participating merchants globally – without changes to merchant software or cardholders having to register and remember passwords
• PIN-generated one-time passcode for online banking access
• PIN-generated one-time passcode for telephone banking services
• Transaction signing for online banking services, using specific elements such as Account Reference Number or amount of transaction
• Access to third party services such as corporate virtual private networks (VPN) for commercial card users, or frequent flyer programmes and other online services.

The process of validating the transaction is done in three simple steps:

1. When shopping online or logging in to an online banking service, the cardholder activates the authentication process by pressing the “Verified by Visa” option button on the card’s keypad
2. When prompted the consumer inputs their PIN into the keypad embedded in the card
3. A unique one-time-passcode appears on the card’s display, which is then used by the cardholder to authenticate a normal Verified by Visa transaction.

I have been an HSBC cardholder for some time now and a few years ago, they had sent me a “security device”, which did something similar, by generating a unique set of digits each time I transacted online or even logged in to my HSBC account. Eventually, once the novelty wore off, it became a pain to carry around and since I rarely use my HSBC card anyway, the device is probably lying in a forgotten nook somewhere.

Likewise, HDFC Bank has something called Netsafe. You need to create an account and then each time you want to transact online, the system generates a virtual card number. You are then prompted to link this virtual card with either your credit card or bank account, for making payment to the merchant site. I tried it a couple of times, but there were too many hassles at the time, especially on Amazon, where I ended up using my American Express card. Haven’t used Netsafe recently though.

This new card from Visa promises much, but I can’t escape the feeling that no matter what levels of security are introduced, it will only be a matter of time before some hacker cracks that system too.

Till then, happy and safe transacting online!

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Raju confessed that he had overstated profits, which is possible either by creating make-believe revenues or by understating costs. Raju did the former. Chidambaram did the latter.

Two sides of the same coin. So who is a bigger crook?

Read On…

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Satyam, already reeling under the impact of the aborted Maytas deal and corporate governance issues, had hoped to resolve these problems in its board meeting on January 10. Initially, like many others, I suspected the letter to be a hoax, but as time went by and there was no denial or rebuttal, the harsh reality about one of corporate India’s biggest frauds began to sink in.

The stock of course, nosedived and fell 77.51%, sending the indices into a tailspin,with the Sensex down 749.05 points (-7.25%), it’s fourth biggest fall in the past decade. The NSE moved swiftly, removing Satyam from the Nifty 50 as well as the S&P CNX 500 with effect from January 12, 2009.

Raju said the company’s balance sheet had inflated (non-existent) cash and bank balances of Rs.5,040 crore (as against Rs.5,361 crore reflected in the books), an accrued interest of Rs.376 crore which is non-existent, an understated liability of Rs.1,230 crore on account of funds arranged by him, an overstated debtors position of Rs.490 crore (as against Rs.2,651 crore reflected in the books). He also mentioned that Satyam reported a revenue of Rs.2,700 crore for the September quarter and an operating margin of Rs.649 crore (24% of revenue) as against the actual revenue of Rs.2,112 crore and an actual operating margin of Rs.61 crore (3% of revenue).

It is ridiculous to imagine a company like Satyam having an operating margin of just 3%. Rather than showing non-existent revenue and assets, he actually siphoned off funds for other ventures and when these failed, he was left with no option but to make the fraud public. The other reason: After the aborted Maytas deal, he had given Merrill Lynch the mandate of scouting around for a potential strategic partner / buyer, but they didn’t like what they saw, and when they refused to play along (pdf), Raju was well and truly screwed.

Lastly, guess who are the auditors of the company ? Yes, none other than PwC, who have a history of being associated with such shady deals in the past as well, like the one at Global Trust Bank among others.

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Rama Raju is one of the promoters of Maytas Properties, which develops urban infrastructure, whereas B Teja Raju is the vice-chairman of Maytas Infra, a 23-year old listed company engaged in infrastructure construction and asset development.

The Satyam ADR was hammered down 55% in the US markets, while the scrip tanked almost 33% in the Indian markets. Finally, the company called off it’s proposed takover yesterday after the furore caused by news of this acquisition led to a shareholder revolt.

Inspite of all his efforts to now clean up the mess, Ramalinga Raju has lost shareholder trust, goodwill and reputation, and it will take more than a share buyback or a special dividend etc to regain that trust.

His arrogance was in full view after announcing the deal, when he said shareholder approval was not needed. The man must be nuts !! The promoters hold less than 9% in Satyam, and to expect that he could carry through this acquisition of a non-aligned business unit was sheer stupidity and threw all corporate governance norms out of the window.

Having promoter or “Lala” managed companies is nothing new in India and owners often take shareholders for a ride, the DLF IPO last year being a case in point. However, just as promoters love money being poured in by FIIs, they have to fear their wrath as well, which is what happened in this case with major stakeholders instantly dumping the Satyam stock.

There are people of integrity and repute as Independent Directors on the Satyam board; M.Rammohan Rao-Dean, Indian School of Business, Prof. Krishna Kalepu-Ross Graham Walker Professor of Business Administration at Harvard Business School (incidentally a Director on the scammy Global Trust Bank as well), Vinod Dham-father of the Pentium, T.Prasad-former Cabinet Secretary, and it is amazing and scary to think none of these distinguished worthies felt like raising any objections to this deal, putting the entire role of Independent Directors under the scanner, not just in Satyam now, but corporate India, who’s image has taken a severe beating.

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Founder of Bernard L. Madoff Investment Securities LLC, Madoff told his employees that ”it’s all just one big lie” and also told investigators it was entirely his fault. For the past so many years, he had maintained an aura of exclusivity around his fund, refusing to share or divulge details of his operations and investments, and even refusing new entrants or chucking out those that got too nosy. He told investors that his fund followed a ”split strike conversion” strategy, which meant owning stock and buying and selling options to limit downside risk. However, other fund managers and traders seemed unable to generate similar unnaturally consistent returns after following his method, and started getting more and more curious.

In fact, as early as 1999, analyst Harry Markopolos tipped off the SEC that it was just not possible to legally generate the kind of returns Madoff’s firm was, given his so-called investment strategy. In November 2005, Markopolos sent a 19 page document to the SEC, entitled “The World’s Largest Hedge Fund is a Fraud”, in which he stated,

Bernie Madoff is running the world’s largest unregistered hedge fund. He’s organized this business as a hedge fund of funds privately labeling their own hedge funds which Bernie Madoff secretly runs for them using a split-strike conversion strategy getting paid only trading commissions which are not disclosed. If this isn’t a regulatory dodge, I don’t know what is.

Madoff was also in the habit of liquidating his holdings every quarter, thereby avoiding the need to file disclosures with the SEC. Incredibly, he even disallowed clients access to their own accounts, cleared his own trades, and was audited by a small firm that had three employees !!

Finally, in the face of the financial crisis this year, as clients lined up to withdraw their funds, Madoff found himself unable to raise the $7 billion needed to cover the redemptions. Even his own sons seemed unaware about the magnitude of the scam, and finally turned their father in. If convicted, he will face upto 20 years in prison along with a $5 million fine. He is presently out on bail after posting $10 million bail.

Some of his largest clients were Swiss bank Union Bancaire Privée ($700 mn), Abu Dhabi Investment Authority ($400 mn), clothing magnate Carl Shapiro ($ 545 mn), and others like Steven Spielberg, Royal Bank of Scotland, BNP Paribas, Man Group, Nomura Holdings et al.

It is amazing to see the number of times all the red flags were overlooked as well as the complete failure of due diligence. All along, Madoff’s reputation and credentials seem to have put a blanket over the regulator’s eyes. It is also amazing to see that in this day and age, people are still willing to fall prey to such scamsters. All these institutional and individual investors just got plain greedy and should have paid heed to that adage, “If something is too good to be true, it probably is”, and another one, “Do NOT put all your eggs in one basket”.

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It seems one of the persons was a cashier at the Chingari Restaurant in Hotel Le Meridien, and he used credit card skimmers and readers which recorded details of the credit card being swiped. These details were then copied on blank cards with magnetic strips. Altogether they used 33 cards of 27 banks among themselves to go on a shopping spree, with the total amount of such purchases being pegged at Rs.1 crore. According to the cops, the type of cards being targeted were the higher end ones, namely, Gold, Titanuim, Platinum and corporate cards, where the credit limit was higher and chances of noticing big ticket purchases and finding anything out of the ordinary were that much lesser.

This came to light when a Citibank employee went to the hotel with some friends and lodged a police complaint after getting his card bill with exorbitant purchases that he had no idea about.

I’ve seen that merchant establishments nowadays are anyway quite lackadaisical and nonchalant about accepting credit cards. Even if there is a photo on the front of the card, they hardly glance at it. As long as the transaction is authorised and their money is safe, they are least bothered with trying to ascertain the genuineness of the card / cardholder. In fact, according to the cops, identifying such cards is quite easy, so it is means the merchants were also in on the game by allowing such transactions to happen. In this case, what also beats me is how an employee of a top hotel could do this for so long without anyone being the wiser as to his modus operandi, or even being aware that he carried such a machine with him.

One of the biggest reasons this also happens is that cardholders let the card out of their sight. There is no harm in walking up to the cashier and settling the bill rather than enclosing the card with the bill folder and signing the chargeslip later. Another common problem is if you make a purchase at a small shop that does not have a swipe machine. The shop owner will tell you that he will get it swiped at a neighbouring shop, where this skimming ‘may’ take place. It is best to avoid such shops, or simply pay in cash, and never, ever, let your card out of your sight.

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This can happen if the person filing the complaint makes a specific charge against such persons in their complaint.

Recently, Tata Finance Ltd. had moved the courts against Paresh Rajda and Vijay Shroff, MD and Director of a company after a cheque of Rs.1 lakh issued by them was returned due to insufficient funds. The Bombay High Court dismissed Rajda’s plea after which he moved the Supreme Court.

The court sought to make a distinction however, between a person not liable for prosecution merely because of designation, and a person who could be deemed to be in charge of and responsible for the conduct of the company’s business.

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A case has now been registered against Sigma Autolink Pvt Ltd, based in Aurora Towers, Pune, for cheating it’s investors during a span of 3 months last year.

This company had placed ads in leading newspapers in June ’07, asking the public to invest in their scheme. The idea was to purchase cars, rent them out and share the returns with those who had invested. For eg., in one of the schemes, if an individual invested Rs.1.55 lakh, he was assured a return of Rs.8,000 per month for 60 months, after which the car would either be transferred to the investor or he would get 20% of the investment back.

The case came to light when some investors failed to receive their monthly instalments, and found the Sigma Autolink office locked when they went to enquire. Ultimately this is just another ponzi / pyramid scheme, where the initial investors get paid from the money being poured in by those who come in later. As there is no substance behind all the talk, the scheme finally collapses, taking all on board, except of course, the promoters !!

Even in these highly “connected” times, where information dissemination has become easier, it seems surprising how easy it is to lure gullible investors to their doom, and one hopes that people shake themselves out of their slumber and do some thorough checking before parting with their hard earned money so easily.

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Deputy Police Commissioner Sunil Phulari (Cyber Cell) said this amount from Palekar’s credit card was transferred to the accounts of two travel companies for purchasing air tickets for Goa-Mumbai and Mumbai-Bangalore flights in November 2007.

Here it is important to reiterate that if anyone happens to obtain your credit card number, it’s expiry date, and the CVV code, this information is sufficient to misuse your card, so please be doubly careful with how you handle your credit card.

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