Pyramid Schemes On The Rise In West Bengal

In a bid to cash in on the prevailing downtrend in stock markets and the cash-rich voluntary retirement scheme-takers, a number of share traders are promising investors assured returns on their investments across West Bengal.

The share traders, claiming to be sub-brokers of members of the Calcutta Stock Exchange and the National Stock Exchange, are collecting funds from investors offering them 60-144 per cent returns. The promises are made on legal deeds. The outfits have been running advertisements frequently in local newspapers.

The modus operandi of the firms are the same. The investment amount has to be parked in for a lock-in period of three-six months. The investor is given post-dated cheques equivalent to his principal. Some traders are offering post-dated National Savings Certificate and Kishan Vikas Patra also.

That apart, the legal deed says the investor has no liability in case his investment incurs losses.

Business Standard has so far tracked down over 60 franchisees representing these trading firms across the state. All these firms, Citi Securities, Invesco Securities, Indian Securities and Sai Securities, to name a few, operate from their headquarters in Kolkata.

Citi claims to be a sub-broker of PD Chomal, while Invesco maintains that its broker is Kumar Securities, based at White Tower in Bowbazar. Sai Securities and Indian Securities declined to name their brokers.

However, Chomal denied having any relationship with Citi. "Citi had trading relationship with my firm long ago. I have clarified to the CSE authorities that I have no attachment with Citi," he said. There is no listed broker of CSE in the name of Kumar Securities. CSE has issued a statement saying the exchange is not connected to such traders.

Admitting that if these outfits trade at all the trading has to be done through CSE terminals, officials of the Securities and Exchange Board of India and the Reserve Bank of India (RBI) said both the organisations were aware of the situation and "would do the needful shortly".

"We have already asked the CSE authorities to look into the matter," a RBI official said.

Experts say these companies are running pyramid schemes (a formula adopted by now-extinct companies such as Sanchayita in the past) where one investor is being paid interest from another's principal. A large number of investors will be hit when the cycle collapses. The RBI had cracked down on many such companies in the past, issuing notices prohibiting them from accepting money.

Investors are making a beeline before the offices of these stock trading outfits.

Over a dozen investors were seen filling up cheques for Rs 25,000 and more at Citi's nearly 1,000-sq feet plus office at Garstin Place in the city.

The brochure of the scheme promises assured returns even if the share market goes down. Also, a legal agreement on a stamp paper is executed.

When asked how the company manages to assure secured returns always, the official of Citi said: "That is the trick invented by our boss. We make profits when share prices go up, and make more money when it goes down."

But how can one makes more money in a situation when short sales is banned?

"That you will understand once you attend a practical demonstration on the methodology of our operations," the official said.

Citi's owner Sanjeev Kapoor, Invesco's proprietor Sandip Singh and Indian Securities' owner A K Gupta could not be reached.