Most of us by know have heard of & are aware of “The Citibank fraud” case. For those who have either not heard of it yet or are not fully aware of what it is all about, let me summarise the case for them; as it is of primary importance that all investors, present as well as future, make themselves aware of this case and learn from it.
It is alleged that, Shivraj Puri, a Relationship Manager (RM) of Citibank’s’ Gurgaon branch, allegedly defrauded prospective Investors for a staggering sum of Rs. 400 crores, most of whom are High Net Worth Individuals (HNIs) by promising them returns to the tune of 24% to 36% per annum from a new investment product that Citibank had allegedly launched. In order to convince these investors, he also forged a document from market regulator SEBI saying that the scheme was approved by Sebi. The money was not collected in the name of any scheme but was pooled into a common bank account of shivraj purl’s accomplice and then they diverted this money to various brokers who invested the same in the stock market on their behalf.
Now what is surprising is the list of people who got fooled by this smart RM of Citibank. More than 40 HNI’s were duped by Citibank’s Relationship Manager (RM) and amongst the list of gullible investors are included the following:
1.     More than 16 corporate including high profile executives from a Delhi based auto major
2.     The MD of a well known venture capital firm
3.     Certain members of the a major auto company’s promoter family
4.     40+ High Net Worth Individuals’
The estimated size of the scam is Rs. 400 crores.
The modus operandi of the fraud was as follows:
Allegedly, the RM had access to High Net Worth Individual (HNI) clients of the bank and was serving in a role which involved servicing their requirements for investment products. Citibank’s relationship manager Shivraj puri and his accomplice, are said to have committed the fraud with the help of an external party, most likely a brokerage house that distributes investment products.
To quote a leading personal finance magazine, The Citi and other similar frauds share some common features.
1. First, there is the use of forged documents to fool customers. Given that there is a growing market for fake PAN cards, driving licences, income tax returns, and so on, a healthy dose of scepticism is required if one is to base an investment decision on a piece of paper. 2. Investors also place undue reliance on relationship managers of banks especially MNC banks. 3. It is hard to believe that a set of businessmen did not question Mr Puri’s promise of a 24% to 36% annual return on what was portrayed as a SEBI-approved scheme.
Who is this RM ?
It is very important that one understands the concept of the RELATIONSHIP MANAGER (RM) in order to understand the Citibank fraud and how this guy was able to dupe HNI’s of Rs. 400 crores. Almost all big MNC banks in India (like Citibank) have the concept of a RELATIONSHIP MANAGER in their banks. The concept of Relationship Managers is more prevalent in these banks Wealth Management divisions. The RM is supposed to be a one stop shop for all queries of the clients that he is assigned. So if I am a client of a bank’s wealth management division and Mr. X is my RM, he will be my single point contact with the bank. From basic paper work to strategic advice, everything is taken care of by Mr. X.
Now, Mr. X typically is an MBA hired from top notch b-school at fat salary and on day one of joining he is given hefty ambitious targets of gathering business for the MNC bank. His variable salary, (which generally is many times his fixed salary) is a function of how much business he can bring for the firm. So Mr. X, a highly motivated RM of MNC bank, sets out to bring new business for his bank on which shall depend his variable pay. Mr. X will greet me and my family on our birthdays and anniversaries, will give jazzy presentations to me, will pay personal visits to me and my family, do practically anything to gain my confidence and eventually my money.
Mr. X is trained to talk smooth, speak high profile finance terminology, promise very high returns and display glamour of the MNC bank to convince me to loosen my purse string. He will also give names/references of other high profile clients to convince me, if nothing else works. Now this RM is typically a marketing guy with basic minimal knowledge of financial products. Mr. X is NOT a finance EXPERT and is not in position to devise an investment plan for you or your family. Second, he is only interested in his commissions and typically changes his job every 2 to 3 years in search of a better salary. So if MNC Bank B gives him better pay then MNC Bank A, he will leave immediately.
Now why is MNC Bank B willing to offer a hefty salary to Mr. X who is not a finance expert ? The answer is pretty simple. Bank B is eying Mr. X’s relationships i.e.: the reason Mr. X is being hired by Bank B is not for his expertise but his list of HNI clients. So Mr. X now joins Bank B and immediately doubles or triples his pay package. Now he approaches me and convinces me to switch my investments to Bank B from Bank A and in the process pockets hefty commissions once gain. In both cases, earlier when he made me invest in products of Bank A and later when he made me switch my investments to Bank B, I was made to pay hefty commissions which went straight to X’s pocket.
Profile of M. X
1.     People associate RM of an MNC bank with an expert. This is completely mistaken concept
2.     People associate a big MNC bank to have checks and balances at place. Another myth…
3.     RMs are generally marketing agents without adequate knowledge of investment products and are generally interested in gathering business for their employers & in return earn hefty commissions
4.     RM’s are generally marketing people and not finance experts.
5.     They are prone to change jobs frequently and usually do not bother to intimate their clients who would have invested for long term based on his/her advice.
Now nowhere am I saying that all RM’s of all banks are on the wrong side and that they should not be trusted. In fact some MNC banks have wonderfull fund managers and have vast experience and knowledge base but the question is do we  have acces to their services. It always pays & make sense to do a double check and be a bit skeptical especially when the question is of assigning somebody to manage your life’s saving, one has to be a bit more cautious and carefull. Lessons learnt:  PRECAUTIONS to be taken

1.     NEVER EVER fall  prey to the lure of hefty returns. Any return over and above 9% per annum in India cannot be 8guaranteed. It can only be indicated. More so if there is a stock or commodity market exposure involved.
2.     SEBI will never promote the investment product of a particular entity or a particular scheme
3.     Schemes promising extraordinary returns should be viewed with suspicion and are in the nature of ponzi schemes
4.     Never give a blank cheque to the RM or even to your your wealth manager
5.     Always write the chq in the name of the Investment product or scheme, never leave the chq blank
6.     Never trust anybody blindly with your hard earned money; try to have access to the Investment professionals and fund managers of the bank. If that access is not granted, it should raise suspicion.
7.     Do a background check of the Wealth Manager or agent.; ask for references
9.     Start initially with a small amount and after having gained confidence, invest further amount.
10.   Learn to differentiate between a Marketing guy and a finance expert.
11.   Do not fall for the lure of big name. The biggest names are known to commit the biggest frauds and are usually not aware of what is happening at the ground level like in the case of the Citibank fraud.
12.   Avoid commission agents . Prefer advisors /financial planners who charge fees for their advice.
Wealth Management is an extremely complex activity involving very high level of education, experience and skillets. Always make it a practice to ask the educational qualification of your Wealth Manager & enquire about his experience in the field.


Good Investment products and opportunities will keep coming your way……


It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” – George Soros

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