MLM News

Beware! Shady chit funds strike in new guise

Saibal Sen, TNN, Apr 5, 2011, 03.16am IST

KOLKATA: Illegal chit funds, a scourge in West Bengal, are back in a sneaky new disguise. Multi-level marketing firms are now luring unsuspecting depositors with promises of mammoth returns in the form of “products”. The booty, according to central and state authorities, runs into crores. What’s worse, the victims have no recourse. Even police give them no hope.

The few cases registered in South 24-Parganas and Nadia which have since been “referred” to CID have startling implications. Ninety depositors together lost close to `3 crore through one such scam, says a case being investigated by Sonarpur (South 24-Parganas) police (FIR No 87/2011). A similar case is being probed by Kalyani police (FIR No. 176/2011). In both cases, former government employees seemed to be the target. They invested their entire retirement benefits hoping for bonanza returns.

Huge as the scam already seems, it is only the tip of the iceberg, say sources.

Take the example of Sukumar Mahapatra, a former joint secretary (education). Running from pillar to post to get a complaint lodged and then get police act on it Mahapatra is exasperated. “I know there is little chance of getting back the `25 lakh I lost. At least police should try to put an end to this menace,” he said. “Moreover, if the victims are spread over the entire state, it does not make sense for local police to investigate. It should be probed by CID. But they are simply sitting over the complaints, emboldening the fraudsters,” he said.

Mahapatra’s son Sagnik who runs a web-development company in Jadavpur first fell into the trap. Investing in such a firm, he got his returns in the first few months. This spurred Sagnik’s mother an entrepreneur herself to invest in it. It was only sometime later that they realised the fraud. The first cheque of their returns bounced. They lodged a complaint.

Not everyone has gone to the police, though. A Krishnagar court upper-division clerk, who refused to be named, has lost `15 lakh his entire retirement benefits to the same MLM firm as Mahapatra’s kin. “There are 90 such victims, but not all are willing to come forward. In some cases, there is no basis on which the complaint can be lodged. The deal was done on the basis of mutual trust. They’ve always paid in cash and have not retained receipts for the payments made,” Mahapatra said.

The modus operandi of these MLM firms is simple. The RBI, in an advisory sent to banks, says that the depositors usually make small cash deposits in accounts opened in several banks across the country. These funds, “running into crores” according to RBI, “were being pooled at the “principal accounts” of the MLM firms and the funds were eventually flowing out of the principal accounts for purposes apparently illegal or highly risky”.

RBI was first alerted to this modus operandi by the Orissa Crime Branch CID in 2009. The RBI says these firms managed to get a large number of bank cheque books by way of opening accounts. The MLM firms in turn issue post-dated cheques for small amounts to depositors. “People were depositing the money in the accounts of MLMs in places far away from where the accounts were actually opened. This was facilitated by the Core Banking Solution ( CBS) offered by the banks.

These go bust invariably. “The operations of these firms are essentially deposit-taking activities involving unusually high returns, the ongoing repayments of interest and deposit amounts in respect of existing deposits would depend on continuous and uninterrupted flow of fresh deposits with increasing volumes. Therefore, at some stage, the flow of deposits is bound to slow down and post-dated cheques tendered thereafter would bounce, due to inadequate funds available in the accounts,” RBI wrote to all banks on September 16, 2009.

The income tax department had also stumbled upon a similar MLM firm in January, 2011, run by three individuals based in Asansol. The I-T raids led to the seizure of cash, bank drafts and fixed deposits to the tune of `12.57 crore and detection of unaccounted income to the tune of `150 crore. The IT disclosure also revealed another aspect these firms had appointed agents who enroll poor villagers in West Bengal, Orissa and adjoining areas for these schemes, promising returns between 12-15%. “In our case, one so-called agent, Saibal Ghosh, has himself lost several lakhs,” said Mahapatra.

On December 23, 2009, the state assembly unanimously passed the West Bengal Protection of Interest of Depositors in Financial Institutions Bill, 2009, which now awaits Presidential assent to be a law. The Bill envisages a life-term for all convicts.


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 Ak Sharma

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Anil Kumar

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