MC Investigates: How elaborate FPI scams groom, persuade people to give away crores of rupees

What is the scam?

In a seemingly new modus operandi, people are being defrauded of lakhs and crores of rupees by promising them access to institutional accounts of foreign portfolio investors (FPIs)—for buying shares at discounted prices and getting allotment in promising initial public offers (IPOs). They are baited and groomed through social-media channels, and their money is funneled through apps, which go by different names such as Provex and Bainlit.

The market regulator had issued an advisory on February 26 warning investors against such scams.

To understand how people are convinced to part with lakhs and crores of rupees, Moneycontrol joined one such WhatsApp group. That and long conversations with people who have been cheated reveal one truth—it could have happened to the smartest of u.

This is a close look at the inner mechanics of this elaborate scam.

First, there is a common template.

There will always be a “professor”, which is just how the group addresses the person who is the brain behind the operation. He (it is almost always a male figure) has an origin story of coming from hard circumstances and making it big in the financial services industry in the US.

Then the story ends with his desire to give back to India and, thus, the WhatsApp group that gives investing advice.

The group Moneycontrol joined had a Professor Sanjay Sharma who claimed to have been born in Delhi in 1979, graduated from the University of Delhi in 2001, left for the US for his postgraduation at Columbia University, joined Merrill Lynch, worked in Wall Street for 20 years, and finally came back to India to help people like himself.

The professors have ‘teacher’s assistants’, or TAs, in the group who act as a go-between for group members and the professor, putting forward the group members’ queries to the professor and—more importantly—reaching out to group members who they believe can be converted into investors.

Vineetha (name changed), a commerce graduate and a well-spoken teacher, who managed to recover most of her Rs 2 lakh capital from these scamsters, said that she found the same TAs in another group she was invited to.

Before transferring her money, Vineetha had googled the name of the professor in her group. He had a website, quoted a Sebi-registration number and had articles written on him. Even the app had articles written on it. Later though, she realised that the website was fake, the registration was some other person’s with the same name and that the articles were advertorials that media houses publish for a price.

While TAs in these groups mediate, there is another set of people who do a more important leg of the work — building consensus. These people pose as interested investors and keep applauding the professor for his knowledge of the stock markets, his easy way of explaining difficult concepts, his generosity in sharing his learning and, finally, for his genius that helps them generate profits in multiples.

Madhav was a barely interested observer of the group in the first month. He had his suspicions and kept resisting the TA’s calls to join in the investing opportunity. For him, what finally tilted the scales, enough to make him consider putting in a small part of his capital, was the sheer number of these vocal supporters.

“There were 150-200 people in the group. I also noticed that more than 2 lakh people were joining in on the live sessions that the professor conducted in the evenings,” he told Moneycontrol.

But that is just the first lever this scam works. There are others.

Two: Give a few winning stocks

Basant (name changed), a senior government official, came to be invited to such a WhatsApp group after clicking on an Instagram post. He had joined the group out of curiosity and to see if he could get ideas for multibaggers.

“You make your money in the market from a few good stocks. For example, my Rs 40 lakh investment in a stock has come down to zero. But my investments of a few lakhs in two or three stocks have shot up to nearly Rs 2 crore. So you are always looking for the next multibagger idea,” he said, explaining why such a group would hold interest to a person like him.

The group is not entirely without value. To keep people hooked, they give stock ideas in the morning and evening. Basant made 1-3 percent per stock suggested and there were 12 of those. In fact, he continues to hold one of the stocks.

Even Vineetha’s father, who had introduced her and her sister to the group, had seen that the stocks recommended in the group were indeed going up.

When the stock ideas don’t deliver as expected, the professor holds a session in the evening to explain in detail—with charts and a deep understanding of the market—on why they didn’t. “It was a learning experience for me,” said Basant.

Basant went along with it till the TA in his group asked him to sign up for the institutional account. He knew something wasn’t right about it but decided to investigate and clicked the link given and found that it led to an app that asked him for his PAN number, Aadhaar number, phone number and name.

That’s when he decided he had enough.

Later, he posted in the WhatsApp group newspaper articles warning about such scams. His post was deleted within seconds and he was thrown out of the group immediately.

Three: Cash giveaways, air tickets, hotel stays

Just as Madhav started following the group’s posts with more engaged interest, he began attending the professor’s live sessions.

He noticed that people were winning cash prizes during these sessions. It involved the spinning of a wheel and, if the wheel landed on a number that a viewer had guessed, he/she could win anywhere between Rs 100 and Rs 2,000. Madhav won Rs 3,000 in total.

That softened his scepticism by a small degree. Why would these people give money away if they were scamsters?

Meanwhile, he was getting calls asking him to apply for an ‘allocation’, which would help him profit from the mythical institutional account.

He didn’t relent.

Later, when he had invested smaller amounts and again started having suspicions about the group, he noticed that the group members were being called for a conference at Sahara hotel in Mumbai and were being offered air tickets and stay.

Vineetha too was growing suspicious when the group announced that they are having a conference in Taj Mahal Mumbai for high-ticket investors. She called the hotel to check about any such booking and found that there was none, yet she was undecided.

After all, she had been allowed to withdraw parts of her capital and, when the app crashed, the group had restarted it. “That restored some of my faith because they hadn’t run away with our money then. They told us that it was a cyberattack,” she said.

Four: Friends and FOMO

When Madhav wasn’t applying for the ‘allocation’ despite repeated calls from the TA, the TA suggested that he apply without giving any money. “She said that it is like a lottery, very few actually win,” recalled Madhav.

But a few days later, he got a call saying that he had indeed ‘won’ an allocation. Did he want to proceed further?

Madhav refused. Immediately, he started receiving calls from other group members asking him if he got an ‘allocation’ and expressing regret that they didn’t. There were four or five people who called but there was one who became as close as a friend.

“We spoke often and he spoke to me freely, like a friend would,” said Madhav. This person, who called himself Dhruv, said that his another friend in banking was jealous of this opportunity and Dhruv said that he couldn’t believe Madhav wasn’t taking it.

Finally, Madhav decided to put Rs 10,000. It wasn’t much but he started making money fast—at least that is what the KKR MF app was showing. As Basant said, they are merely ledger entries that the group make, no one was actually buying and selling stocks.

“Their stocks were giving 5 percent return every day,” said Madhav, who was checking the stocks’ performance on third-party, independent sites as well.

Five: Allow small withdrawals

Madhav had invested Rs 3 lakh when he decided to test the app once again for fraud. He tried withdrawing Rs 50,000 and he was allowed to do it.

That was a tipping point. He said that after that, over 20-25 days, he invested Rs 30 lakh to profit from block deals that the institutional investor was supposedly participating in. The promise was that these block deals would be done at a 15-20 percent discount to market price since these were large orders and the retail investors could participate by signing up through the app.

Vineetha too was being allowed to withdraw profits in small tranches. But, she started noticing that the transfers were being done from various accounts—Chand Jewellers, Pari Fashions and so on.

Also read: Mahadev App Case: Hawala operator Hari Shankar Tibrewala enters the Indian markets hall of infamy

She told her father that something wasn’t right and that they had to start taking out their money.

Finally, six: Intimidate and threaten

When Vineetha was showing reluctance to put more money, the TA called her and threatened her, saying that she would be blocked from the app. The TA said that Vineetha wasn’t making any money for the group.

Then, Vineetha still had Rs 30,000 of her capital stuck in the app and, along with her profits, the balance on the app showed Rs 8 lakh.

The group has a profit-sharing clause. They usually demand 20 percent of it.

They asked Vineetha to transfer Rs 1.45 lakh to withdraw her Rs 8 lakh. Vineetha suggested that they transfer shares that could be sold for Rs 1.45 lakh into her demat, that she would sell that and pay them. They refused and insisted that she pay them first. That’s when Vineetha finally exited the group and the app.

It must have been a hard decision. To let go of Rs 6.5 lakh.

Madhav wanted to withdraw his profit of Rs 50 lakh. But they asked him to deposit more money as part of profit sharing to withdraw that money. He pleaded with them saying that all his money was locked up in the investment with them, and that he would pay as soon as he had received the profits.

That’s when they said that they would block him from the app if he didn’t pay up, and the scam finally dawned on him.

Madhav had taken a Rs 20 lakh loan from a friend to make the investment.