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Court Jails Indian Tycoon | |
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NEW DELHI — Subrata Roy has long been one of Asia’s most flamboyant billionaires, a bejeweled modern maharajah who lives on an opulent 270-acre estate and presides over the Sahara Group, which is, by its own account, the largest private employer in India. To his allies, Mr. Roy is an up-by-bootstraps hero who built from scratch a sprawling empire that provides vital financial services to the country’s poor. | NEW DELHI — Subrata Roy has long been one of Asia’s most flamboyant billionaires, a bejeweled modern maharajah who lives on an opulent 270-acre estate and presides over the Sahara Group, which is, by its own account, the largest private employer in India. To his allies, Mr. Roy is an up-by-bootstraps hero who built from scratch a sprawling empire that provides vital financial services to the country’s poor. |
But last week, India’s Supreme Court charged him with contempt and locked him in Tihar Jail in New Delhi and demanded a maharajah’s ransom of at least $3 billion to set him free. His company may have to sell or mortgage some of its most valuable assets to pay for his freedom. Among the jewels in Sahara’s crown are the Plaza Hotel in New York and the Grosvenor House hotel in London. | But last week, India’s Supreme Court charged him with contempt and locked him in Tihar Jail in New Delhi and demanded a maharajah’s ransom of at least $3 billion to set him free. His company may have to sell or mortgage some of its most valuable assets to pay for his freedom. Among the jewels in Sahara’s crown are the Plaza Hotel in New York and the Grosvenor House hotel in London. |
The court contends that Sahara’s investments were illegal and its investors fictitious, and it says that it will hold Mr. Roy until the company returns the billions it collected. The company insists that its investments were appropriate and its investors simply hard to find. At its heart, the dispute is over whether Sahara is one of the world’s most important providers of credit to the deserving poor or a huge money-laundering operation for the crooked rich. | The court contends that Sahara’s investments were illegal and its investors fictitious, and it says that it will hold Mr. Roy until the company returns the billions it collected. The company insists that its investments were appropriate and its investors simply hard to find. At its heart, the dispute is over whether Sahara is one of the world’s most important providers of credit to the deserving poor or a huge money-laundering operation for the crooked rich. |
In addition to being India’s largest private employer, Sahara claims to be the country’s largest private property owner and its largest private financial institution. Its 1.2 million employees work in about 4,800 finance offices as well as retail shops, hotels, hospitals, newspapers and power generation projects. | In addition to being India’s largest private employer, Sahara claims to be the country’s largest private property owner and its largest private financial institution. Its 1.2 million employees work in about 4,800 finance offices as well as retail shops, hotels, hospitals, newspapers and power generation projects. |
Sahara executives, several of whom demanded anonymity because of the court proceedings, said the company had done nothing illegal and deserved a Nobel Peace Prize for its work. Any harm brought to Sahara, they said, could hurt all of India. | Sahara executives, several of whom demanded anonymity because of the court proceedings, said the company had done nothing illegal and deserved a Nobel Peace Prize for its work. Any harm brought to Sahara, they said, could hurt all of India. |
But suspicions that Sahara is laundering money have swirled since at least 1996, when the tax authorities in Lucknow first investigated allegations. “Is Sahara the Swiss Bank of India,” a prominent newspaper columnist asked this week, “where the high and mighty keep their unaccounted money and millions of investors have only lent their names?” | But suspicions that Sahara is laundering money have swirled since at least 1996, when the tax authorities in Lucknow first investigated allegations. “Is Sahara the Swiss Bank of India,” a prominent newspaper columnist asked this week, “where the high and mighty keep their unaccounted money and millions of investors have only lent their names?” |
Mr. Roy has never been charged with money laundering and openly boasts of an unrivaled stable of influential friends. A corporate website includes pictures of him with President Obama, former President Bill Clinton, almost every top politician in India in the past 25 years and a bevy of Bollywood actors. | Mr. Roy has never been charged with money laundering and openly boasts of an unrivaled stable of influential friends. A corporate website includes pictures of him with President Obama, former President Bill Clinton, almost every top politician in India in the past 25 years and a bevy of Bollywood actors. |
People close to the present investigation who asked to remain anonymous because the case was still being adjudicated said that some of the country’s most powerful politicians called securities regulators in recent years to ask for leniency for Mr. Roy. | People close to the present investigation who asked to remain anonymous because the case was still being adjudicated said that some of the country’s most powerful politicians called securities regulators in recent years to ask for leniency for Mr. Roy. |
“Why hasn’t the Sahara scam been denounced by any politician or political party, like every other scam has?” asked Prithvi Haldea, a securities analyst who sits on government securities oversight committees. “There’s a deafening silence on Sahara, and it’s because they’re all complicit.” | “Why hasn’t the Sahara scam been denounced by any politician or political party, like every other scam has?” asked Prithvi Haldea, a securities analyst who sits on government securities oversight committees. “There’s a deafening silence on Sahara, and it’s because they’re all complicit.” |
Mr. Roy, 65, started Sahara in 1978 with $32 and a scooter that is now kept on a pedestal at the company’s headquarters. He coaxed tiny but regular deposits from hundreds, then thousands, then millions of India’s poor, promising in return to pay for a son’s wedding, a daughter’s dowry or a grandmother’s operation in a service that was part bank, part insurance and part investment. He did not demand the blinding array of documents that Indian banks insist upon, and he and his employees often appeared at depositors’ homes. | Mr. Roy, 65, started Sahara in 1978 with $32 and a scooter that is now kept on a pedestal at the company’s headquarters. He coaxed tiny but regular deposits from hundreds, then thousands, then millions of India’s poor, promising in return to pay for a son’s wedding, a daughter’s dowry or a grandmother’s operation in a service that was part bank, part insurance and part investment. He did not demand the blinding array of documents that Indian banks insist upon, and he and his employees often appeared at depositors’ homes. |
Like many businessmen in India, Mr. Roy has frequently faced legal trouble. He laughed off investigations for so many years that he even skipped a Supreme Court hearing on Feb. 26 that he had been ordered to attend (his 92-year-old mother was sick, he said later). Angered, the court issued an arrest warrant. | Like many businessmen in India, Mr. Roy has frequently faced legal trouble. He laughed off investigations for so many years that he even skipped a Supreme Court hearing on Feb. 26 that he had been ordered to attend (his 92-year-old mother was sick, he said later). Angered, the court issued an arrest warrant. |
The police went to his estate in Lucknow called Sahara Shahar, which has an artificial lake, its own gas station, a theater and a 5,000-seat auditorium. Mr. Roy was not present that day but turned himself in the next. Mr. Roy spent his first weekend in custody being pampered in a government guesthouse, but he is now lodged in the notorious Tihar Jail, South Asia’s largest prison complex. | The police went to his estate in Lucknow called Sahara Shahar, which has an artificial lake, its own gas station, a theater and a 5,000-seat auditorium. Mr. Roy was not present that day but turned himself in the next. Mr. Roy spent his first weekend in custody being pampered in a government guesthouse, but he is now lodged in the notorious Tihar Jail, South Asia’s largest prison complex. |
The Sahara case demonstrates not only the extraordinary deference given the wealthy and well-connected but the lack of sophisticated oversight of India’s financial system, according to Ajay Shah, a professor at the National Institute of Public Finance and Policy in New Delhi. | The Sahara case demonstrates not only the extraordinary deference given the wealthy and well-connected but the lack of sophisticated oversight of India’s financial system, according to Ajay Shah, a professor at the National Institute of Public Finance and Policy in New Delhi. |
“India’s present laws are hopelessly out of touch with what’s happening in the real economy,” Mr. Shah said. | “India’s present laws are hopelessly out of touch with what’s happening in the real economy,” Mr. Shah said. |
The World Bank has estimated that only 35 percent of India’s adult population has access to formal banking services, and much of Sahara’s business has been based on serving the remaining 65 percent — rickshaw pullers, tea vendors and farmers. | The World Bank has estimated that only 35 percent of India’s adult population has access to formal banking services, and much of Sahara’s business has been based on serving the remaining 65 percent — rickshaw pullers, tea vendors and farmers. |
Using millions of such tiny and untraceable deposits, Sahara reported that two of its companies had created privately placed bonds valued at $4 billion. But Indian law also requires that investments involving 50 or more people be regulated by the Securities and Exchange Board of India, widely known as SEBI. | Using millions of such tiny and untraceable deposits, Sahara reported that two of its companies had created privately placed bonds valued at $4 billion. But Indian law also requires that investments involving 50 or more people be regulated by the Securities and Exchange Board of India, widely known as SEBI. |
For years the board peppered Sahara with questions about its bonds, and for years Sahara refused to provide answers. In one letter to the securities board, Sahara wrote that it could not answer in detail because “most of the staff remains on long holidays with their children, due to summer holidays” — an explanation that prompted the Supreme Court to wonder derisively whether Sahara was “running a kindergarten where their staff were expected to be unavailable during the summer.” | For years the board peppered Sahara with questions about its bonds, and for years Sahara refused to provide answers. In one letter to the securities board, Sahara wrote that it could not answer in detail because “most of the staff remains on long holidays with their children, due to summer holidays” — an explanation that prompted the Supreme Court to wonder derisively whether Sahara was “running a kindergarten where their staff were expected to be unavailable during the summer.” |
After more orders by the board and the Supreme Court, Sahara provided compact discs that purportedly contained the identities of millions of investors, but Sahara refused to divulge the discs’ passwords, regulators said. | After more orders by the board and the Supreme Court, Sahara provided compact discs that purportedly contained the identities of millions of investors, but Sahara refused to divulge the discs’ passwords, regulators said. |
Then Sahara sent 127 trucks containing nearly 31,669 cartons that it said contained investment records from 30 million people. The cavalcade caused a huge traffic jam in Mumbai, the headquarters of the Securities and Exchange Board. But thousands of letters sent to investors by the board were returned undelivered. | Then Sahara sent 127 trucks containing nearly 31,669 cartons that it said contained investment records from 30 million people. The cavalcade caused a huge traffic jam in Mumbai, the headquarters of the Securities and Exchange Board. But thousands of letters sent to investors by the board were returned undelivered. |
The Supreme Court’s cursory examination of Sahara’s investor list led it to conclude that many of the names “may well be fictitious, concocted and made up.” | The Supreme Court’s cursory examination of Sahara’s investor list led it to conclude that many of the names “may well be fictitious, concocted and made up.” |
Sahara says it has already returned $3 billion to investors and given an additional $800 million to the board, and that is all that is due. But Securities and Exchange Board officials say that Sahara has provided no verifiable proof that it has paid back its millions of investors. | Sahara says it has already returned $3 billion to investors and given an additional $800 million to the board, and that is all that is due. But Securities and Exchange Board officials say that Sahara has provided no verifiable proof that it has paid back its millions of investors. |
The Supreme Court has ruled that if the board cannot find genuine Sahara investors, the money the company surrendered should be given to the government. With interest, the outstanding balance is $5.4 billion, the board said last Friday. | The Supreme Court has ruled that if the board cannot find genuine Sahara investors, the money the company surrendered should be given to the government. With interest, the outstanding balance is $5.4 billion, the board said last Friday. |
In a hearing on Thursday, the court ordered Mr. Roy to remain in jail and asked the company to come up with a new plan to pay back the investors. | In a hearing on Thursday, the court ordered Mr. Roy to remain in jail and asked the company to come up with a new plan to pay back the investors. |