Insider trading lead to Joharis' fall out

Rahul Gupta

Lucknow

Public memory is proverbially short. But Lucknow (and for that matter, the entire country) is unlikely to forget the Cyberspace promoters Joharis soon. The Joharis rose from Prem Nagar on Ashok Marg--where their ancestral house is
located-non-entity in Lucknow to an untamed bull of Jeejeebhoy Towers in Mumbai. CBI investigations have revealed that the tainted stockbrokers had 23 firms with 150 bank accounts, both in their names and benami, throughout the country.

The two Johari brothers, 39-year old Anand Krishna aka AK and 42-year old Arvind Mohan were chips off the old block.

They inherited accounting acumen from their father, GN Johari, an accountant in the UP Housing Board. The brother's duo did a stint as small-time LIC agents. Their tryst with numbers began in the early adulthood when the big brother decided to make his foray into the stock markets and floated Century Consultants Ltd (CCL) in 1980. His grasp and sharp business sense changed the family's fortune when the firm soon carved a niche for itself on the stock markets and by mid-nineties had a market worth Rs 25 to 30
crore.

But an ambitious Arvind Mohan, who had set his eye on lofty goals, was not content and wanted to seek greener pastures. His lure for big bucks and the world of high stakes finance drew him towards the country's commercial
capital--Mumbai.

Entrusting the Lucknow business in the adept hands of his father and younger brother, Arvind migrated to Mumbai. With is uncanny business sense and financial skills, the maverick Arvind smelt out the big deals, earned big bucks and soon won the admiration and respect of his fellow stock brokers at the Mumbai Stock Exchange.

The shares of the CCL which had hit the primary market in 1995 were converted in the name of Cyberspace Infosys Technologies Ltd in 1998. The share of Cyberspace was priced at Rs 10 and the company had not charged any premium while issuing it. Also the shares of the company were oversubscribed.

He had also diversified into banking and set up the City Co-operative Bank (CCB) in 1996 which following its post scam closure in March 2001 had an investor base of 17,000. Younger brother Anand Krishna was shunted off to the bank as one of its directors and all financial dealings and transactions of the bank were the sole prerogative of the
Joharis.    

The real test of the Joharis contacts came in 1999 when they bid for setting up of a software technology park in Lucknow--the first private STP in UP. A committee set up to finalize the investor for the STP chose Delhi-based Usha Group over Cyberspace because the latter did not have any experience in the software business. But Anil Gupta, Secretary of the state's Department of Electronics, rejected the committee's recommendations and forwarded Cyberspace's name for the
STP.

The Housing and Development ministry, which is headed by Lalji Tandon, the Urban Development Minister of UP allotted a prominent piece of land in the city for the STP. The foundation stone was laid by Atal Bihari Vajpayee, Prime Minister, in January 2001.

Interestingly, it was UP Electronics Corporation Ltd (UPTRON) which invited the Joharis for the joint venture for construction of STPs in the state and floated Cybertron Technopolis. Cyberspace had bagged the prestigious contract for developing STPs in three cities across the state including Lucknow. Besides Lucknow, it had bagged the contract for Allahabad and Agra also. Cyberspace bagged a lion's share of 74 percent in Cybertron while UPTRON had only 26 percent share in it.

This was the time when the shares of Cyberspace started shooting up in 1999 when the news of its negotiation regarding the development of STP in UP hit the headlines. According to sources, insider trading by CCL played a major role in it and the share prices registered a multifold rise at BSE. The shares of Cyberspace started shooting up and on January 10, 2000, it was being traded at Rs 855. Within a span of two months, the shares of Cyberspace crossed Rs 1,000 barrier and on March 21 last year it was traded at Rs 1190.90.

Arvind by now was billed as the man with the Midas touch. It seemed nothing could go wrong for the high profile stock broker whose fortunes were soaring on the crest of IT revolution. By now he had cast his net wide and even as he set about pulling off the last big acquisition deal in January 2001 and that of a US-based IT company UII Corps. It was a $ 6 million deal and he had paid Rs 1 crore to KPMG to clinch the deal.

Meanwhile SEBI had started scanning the prices of Cyberspace during the last year and had apprehended that insider trading by the parent firm helped the stock touch new heights. However, the price of Cyberspace share started coming down since October last when it was traded at Rs 31.10 at
NSE.

CBI also claims to have evidence to link Joharis with DR Mehta, Chairman, SEBI, in connection with the UTI scam. CBI sources said that Mehta was regularly in touch with P Subramanyam, the then UTI Chairman and Joharis to help a relative Rakesh Mehta of Renaissance Securities, a private placement agency which placed UTI's shares in Cyberspace. UTI has suffered Rs 32.8 crore loss by investing in Cyberspace and total Rs 386 crore in 285 vanished companies since 1964.

"The 'black money' built by politicians and senior public servants in UP offered an easy alternative in stock markets through CCL's business options and the Joharis were only too willing to launder money for their affluent clients," claimed a senior CBI official. The funds collected from CCL investors of Byaj Badla and Portfolio Management schemes were routed through these accounts and diverted by the scamsters to indulge in heavy insider trading to jack up the prices of Cyberspace. "He indulged in jugglery through multiple transactions from these large number of bank accounts to conceal the funds source," disclosed the CBI official. Till 1995, the funds flow from Joharis various firms in the city to Mumbai was Rs 1 crore annually. "This, however, shot up to Rs 50 crore soon after they floated Cyberspace Infosys," he added.

Rahul Gupta/CNS in Lucknow