Thursday, December 30, 2010

Latest Investment Product Scam

While the details are still coming out, it appears that a Relationship Manager of the bank offered his own investment product to the bank's clients, as if it was a product of the bank and approved by the regulater.  Kickbacks to officials of investing organisations are also being spoken of.

Based on press reports, the Scam has elements of Misrepresentation, Illegality and Fraud.  Deeper enquiry will show whether Hawala is also involved. 

I suggest that you follow the case closely.  This would be a live example to better understand, the elements of  "MISCHIEF", which I mentioned in my Wealth Engine program. 


  1. Normally, problems with products come to the fore on account of issues of liquidity.

    Here, the Hero group, which was a major investor in the product, needed money to buy out Honda in their joint venture.

    Wonder what role that separation with Honda had on the scam hitting the roof

  2. One of the investors who finds himself down Rs25crore in the scheme is a successful entrepreneur, now a private equity invester. Goes to show that even knowledgeable people can be conned.

    In a smart move, he has filed an FIR against the top brass of the bank. Why is it smart?
    1. The bank is not some fly-by-night operater. It has a reputation to protect. Longer the problem lingers, and more it is covered in the press, greater the reputation risk.
    2. Consequent to the FIR, if the police calls the top brass for questioning - from New York - all the press in the country and aboad will cover the "event". More reputation risk.
    3. The bank is otherwise protected by a fraud insurance policy. Quietly paying off investors and recovering the loss from the insurance policy entails the least reputation risk.

    On what grounds has the FIR been filed? Systems failure in the bank. Incidentally, this is the ground on which many cases against wealth managers in the US have been fought - and won.

    The investor seems to have landed his punch at the bank's soft spot. What is the learning for investors? If you are dumb enough to get on the wrong end of a scam, at least be smart enough to recover your money - and damages.

    Now be prepared for comments like - "I have no comments to make. The case is sub judice"; followed by an out-of-court settlement.


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