With a surge in the number of internet users and a rise in technological advancement, we are able to make online banking transactions and investment transactions. As of March 2024, India has around 954.40m internet subscribers.1 Along with a strong population growth, we are also growing our digital footprints year on year.
This also opens avenues to digital/ cybercrimes. One such avenue is the Investment Scam. There has been an increasing trend in India, where a person is contacted by another person claiming to be an “expert” who can provide lucrative investing tips if one joins their investment plan/ strategy.
How it is done:
The person claiming to be an expert or providing expert investment tips introduces themselves as either a renowned person in the field of Finance and Securities exchange or a person who is directly affiliated with the said “expert”. Once the victim believes the identity of the fraudster, they go on to explain the lucrative tips they provide (generally promising high returns on investments, stocks which are about to get a reversal in their trend, investing into shares at a discounted rate, IPO offers from unlisted companies which are going to be listed soon along with opportunities to invest in these IPOs before the offer being open to the general public). The fraudster plays on the feelings of a person believing themselves to miss out on the opportunity to make great returns.
Post the agreement of the victim to join their “Investment Group”, they are added to a WhatsApp/ Telegram group (and sometimes even asked to download an app for which they will send a link). In the case of Federated Hermes Ltd V. John Doe and Others 2 the registered Trademark of “FEDERATED HERMES” was used to lure in potential victims along with impersonating Mr. Pankaj Tibrewal (a well-known investment professional), who had no affiliation with the actual firm Federated Hermes Ltd. The impersonators used the Trademark and the identity of a well-known investment professional to conduct their fraud.
Similarly, in the ongoing case (as of 10th Jan 2025) of Sequoia Capital Operations LLC V. John Doe,3 the fraudsters operated under the guise of using the registered trademark of “SEQUOIA” and attracted unaware potential customers to their fraudulent investment schemes.
Once the person joins the group, they are given “expert tips” and asked to transfer sums of money to various accounts under the pretext of purchasing the shares. If they have downloaded an App, then the victim is asked to deposit the money in their “demat account” within the app and make purchases through the App itself. The fraudsters reflect the stock prices as per the market price of the listed stock on the App to show the victim their so-called gains, which are only on the App and not real. If the victim tries to withdraw the money, their request gets put
under review. Post this, they connect with the victim and let them know that they have to pay a certain amount of the profit earned (the fraudsters may even include the amount of the unrealized gains) in order to withdraw their funds. This puts the victim in a position where they believe only if they make the payment, their funds (invested amount + realized profit) will no longer be on hold and they will be able to withdraw them. Even if the victim pays the amount,
they will not be able to withdraw any amount that is reflected in the downloaded app. The number shown in the downloaded app is a mere manipulation and the actual amount has already been transferred to the fraudster’s account. Post the above altercation, the fraudsters disconnect with the victim and no longer answer any calls or revert to their messages.
Similar to the Sequoia Capital case, the brand name “Nuvama Wealth” was also used to syphon off funds from unknowing victims.4
How to prevent from being scammed:
There are various ways to identify a Ponzi investment scheme or if the person reaching out to you is a legitimate SEBI Registered advisor.
Few things to take caution of:
1. Check their credentials on the SEBI Website – where you can put in their registration details such as – Name/ Trade Name, Contact Person, and Registration No.5
2. Refrain from trading from any unregistered platform or entity which deals in unlisted debt securities.6
3. Do not buy into unrealistic promises such as “Guaranteed monthly returns”, “100% or more returns”, “IPO at discounted prices” and many such claims.
4. Do not take trading/ investment tips either on WhatsApp or Telegram groups or any other social media websites.
5. Only connect with an actual professional investment advisor or agency via their official website, registered email, or registered contact person, you can also verify their registered office address by physically visiting the registered office address (Details of which can be found on the SEBI website).
6. Certain red flags to keep in mind:
a. Use of words such as “Guaranteed profits/ returns”
b. Unrealistic profits promise – 100% or more in a month
c. Convoluted terms and conditions or language
d. Asking you to download an App directly sent from a link of the other person
7. Over 93% of traders in the F&O segment have lost money 7, only trade in this section post gaining the knowledge of how F&O works.
8. As per the Global Financial Development Database the average return rate on Equity in India as of 2022 is only 21.50% 8
Conclusion:
One must remain vigilant, conduct their own research, and not blindly put their faith in anyone or any advertisement they come across on social media platforms. We have a plethora of tools at our disposal to check if the person approaching us asking us to invest our money is legitimate.
Always remember, there is no such thing as easy money and there is no shortcut to create wealth.
References:
- PIB Delhi ‘Universal connectivity and Digital India initiatives reaching to all areas, including tier-2/3 cities
and villages’ (2024), Ministry of Communications 2040566
https://pib.gov.in/PressReleasePage.aspxPRID=2040566#:~:text=Under%20the%20Digital%20India%20Initiative,398.35%20million%20Rural%20Internet%20Subscribers, accessed on 10th January 2025 - Federated Hermes Ltd V. John Doe and Others – (2024) SCC OnLine Del 8831
- (2024) CS(COMM) 69
- Nuvama Wealth – https://www.nuvamawealth.com/cas/trigger_mailer/Investor-Awareness-12-Aug-24.html, last accessed on 02nd Feb 2025
- SEBI – https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=13, last accessed on 10th January 2025
- SEBI – Caution to Public (2024), PR No. 32/2024
- SEBI – Updated SEBI Study Reveals 93% of Individual Traders Incurred Losses in Equity F&O between FY22 and FY24; Aggregate Losses Exceed ₹ 1.8 Lakh Crores Over Three Years (2024), PR No. 22/2024
- World Bank Group – https://www.worldbank.org/en/publication/gfdr/data/global-financial-developmentdatabase, September 2022 Version, last accessed on 10th January 2025
ARTICLE BY-
KUNJ KARIA