Citibank scams

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Introduction of citi bank Citi is one of the major U.S. financial services companies. Citigroup was created in 1998 after the merge between Citicorp and Travelers. Citicorp comes from the City Bank of New York, founded in 1812.Citigroup is based in 140 countries and has about 200 million customers. In 2009, Citi reported a net loss of $1.6 billion.

Vikram Pandit is the Chief Executive Officer of Citi since December 11, 2007. Prior to that, he was CEO of Citi's Institutional Client Group.

Before joining Citi, Vikram Pandit was President and Chief Operating Officer of Morgan Stanley's institutional securities and investment banking businesses.

The City Bank Ltd. was established with a specific vision and some missions. They are-

VISION:

To be the leading bank in the country with best practices and highest social commitment.

MISSION:

  To contribute to the socioeconomic development of the country.

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To attain highest level of customer satisfaction through extension of services by dedicated and motivated team of professional.

To maintain continuous growth of market share ensuring quality.

To maximize banks profits by ensuring its steady growth.

To maintain the high moral and ethical standards.

To ensure participative management systems and empowerment of human resources.

HISTORY Citigroup ' was founded as City Bank of New York in 1812 and remained a large regional bank until October 1998.   Sandy Weill, then CEO of The Travelers Group an insurance company announced a $76 billion agreement to merge with Citigroup to form a new financial services conglomerate.     It took only two years for the merger to pass federal law since the 1933 Glass-Steagall Act prevented banking and insurance companies from ever becoming one entity.  

As the new CEO of Citigroup, Sandy Weill was now at the helm of one of largest banking institutions in the world with over 300,000 employees and operations in over 120 countries.   Popular brand names included CitiCards, CitiFinancial, CitiMortgage, Primerica, Salomon Brothers, Smith Barney, Diners Club and CitiCapital.   Citigroup became the world’s first global financial supermarket where banking, brokerage and insurance were all held under the control of one organization.   Citigroup is organized into four major segments; Consumer, Banking, Global Cards, Institutional Client Group, and Global Wealth Management.   Citigroup offers a wide range of products from retail banking, credit card services, and mortgage loans to global transaction services, M&A financing, and corporate lending.   Citigroup is currently the largest bank in the United States with over

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US$600 billion in deposits and assets under management of over US$1.2 trillion.

Citigroup’s fortunes continued to blossom during Sandy Weill’s tenure and even during the market downturn in 2002. On October 1st, 2003 Chuck Prince replaced Sandy Weill as CEO of Citigroup and for the next several years successfully continued to grow the business and achieve record profits and earnings.   Citigroup’s stock continued to rise during Chuck Prince’s tenure.   Citigroup stock rose from $47.00 in 2003 to a high of a $54.51 in 2007.

Nigerian Accused in Scheme to Swindle Citibank:

Swindles in which someone overseas seeks access to a person’s bank account are so well known that most potential victims can spot them in seconds.

But one man found success by tweaking the formula, prosecutors say: Rather than trying to dupe an account holder into giving up information, he duped the bank. And instead of swindling a person, he tried to rob a country — of $27 million.

To carry out the elaborate scheme, prosecutors in New York said on Friday, the man, identified as Paul Gabriel Amos, 37, a Nigerian citizen who lived in Singapore, worked with others to create official-looking documents that instructed Citibank to wire the money in two dozen transactions to accounts that Mr. Amos and the others controlled around the world.

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The money came from a Citibank account in New York held by the National Bank of Ethiopia, that country’s central bank. Prosecutors said the conspirators, contacted by Citibank to verify the transactions, posed as Ethiopian bank officials and approved the transfers.

Mr. Amos was arrested last month as he tried to enter the United States through Los Angeles, a prosecutor, Marcus A. Asner, said in Federal District Court in Manhattan.

Mr. Amos, who was charged with one count of conspiracy to commit bank and wire fraud, told a federal magistrate judge, “I’m not guilty, sir.” The judge, Andrew J. Peck, ordered him detained pending a further hearing. If convicted, he could face up to 30 years in prison, prosecutors said.

The fraud was uncovered after several banks where the conspirators held accounts returned money to Citibank, saying they had been unable to process the transactions, and an official of the National Bank of Ethiopia said that it did not recognize the transactions, according to a complaint signed by an F.B.I.agent, Bryan Trebelhorn.

A Citigroup spokeswoman said: “We have worked closely with law enforcement throughout the investigation and are pleased it has resulted in this arrest. Citi constantly reviews and upgrades its physical, electronic and procedural safeguards to detect, prevent and mitigate theft.”

A spokesman for the Ethiopian Embassy in Washington said, “We are aware of this unfortunate story.” He said the embassy was not involved in the legal proceedings, and declined further comment. Officials at the National Bank of Ethiopia could not be reached by phone for comment.

Prosecutors said the scheme began in September, when Citibank received a package with documents purportedly signed by officials of the Ethiopian bank instructing Citibank to

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accept instructions by fax. There was also a list of officials who could be called to confirm such requests. The signatures of the officials appeared to match those in Citibank’s records and were accepted by Citibank, the complaint says.

In October, Citibank received two dozen faxed requests for money to be wired, and it transferred $27 million to accounts controlled by the conspirators in Japan, South Korea, Australia, China, Cyprus and the United States, the complaint says.

Citibank called the officials whose names and numbers it had been given to verify the transactions, prosecutors said. The numbers turned out to be for cell phones in Nigeria, South Africa and Britain used by the conspirators.

Citibank, in its investigation, later determined the package of documents had come via courier from Lagos, Nigeria, rather than from the offices of the National Bank of Ethiopia, in Addis Ababa.

Citibank has credited back the lost funds to the National Bank of Ethiopia, said one person who was briefed about the situation.

Ex-Smith Barney Adviser Pleads Guilty to Securities Fraud in $3.25M

Scam to Bilk Citibank and Firm Clients :

        Sanjeev Jayant Kumar Shah, a former Smith Barney financial services adviser, has pleaded guilty to 1 count of securities fraud & three counts of wire fraud over his involvement in a securities scam to bilk clients of Citibank & his firm. Shah was charged with diverting about $3.25 million

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from a foreign bank client and fabricating documents that he claimed were from bank representatives.

       He is also accused of falsely saying that the transfers were required for bond purchases and that he would send statements showing these purchases. Prosecutors say that he attempted to cover up the scam by telling clients that a computer mistake had kept the bonds from showing up online bank statements and that had had bought the bonds for the bank.

       The securities fraud charge comes with a 20 yr maximum penalty. Each wire fraud charge carries a maximum 30 yrs in prison penalty+fine. Citigroup says that it was the 1 that brought the case to the attention.

Securities Fraud: Our securities fraud lawyers are committed to helping our clients recover their financial losses. The most common investor claims against brokers and investment advisers can involve issues such as:       

• Unsuitability• Registration violations• Margin account abuse• Unauthorized trading• Breach of fiduciary duty• Breach of contract• Failure to execute trades• Overconcentration• Negligence• Churning• Misrepresentation and omissions• Failure to supervise

CITIBANK CAUGHT IN FINANCE FRAUD AT GLOSCON SOLUTION Another Citibank mess! - This time in India - Fraud and cheating complaint filed in Police Station

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One of the World's largest Bank is again headed in trouble and this time in India.

This should be an eye opener for all businesses that are having Citibank Account and dealing with Inward International Transfers. In this particular matter, Citibank assured a very low commission rate to win corporate business and in real banking transactions when they happened, they charged higher commissions without any prior consent from business. An application to register F.I.R against Citibank under section 420, 120b, 406 Criminal Procedure Code was submitted at Navrangpura, Ahmedabad police station on 21 June 2008 at 8:45 PM Indian Standard Time.

This incident happened with Gloscon Solutions Pvt Limited, a 100% EoU, an Open Source Web 2.0 Software Development firm and and a global leader in Drupal CMS implementation.

Citibank Ahmedabad Team, Head Office in Chennai and their Grievance Cell have not cooperated in this matter to provide right answers. It is noteworthy that while Grievance cell was absolutely non-functional and did not act, Citibank Ahmedabad office changed 3 Relationship Managers(Mr. Himanshu Mehta, Mr. Biju Thomas, Mr. Yogesh Mehta) in span of 20 days in this matter. The newest manager Mr. Yogesh Mehta approached Gloscon Solutions Pvt Limited on 18th June 2008 and even suggested to forget the matter and look towards future while this appears to be a multi crore scam by Citibank. Himanshu Mehta, the first relationship manager on his 23rd May 2008 visit to Gloscon revealed that "Citibank system has technical glitch". World's largest bank having a technical a glitch that could be costing businesses millions?. Keeping the business customers in dark, Citibank has been ripping off its customers by charging higher commissions and not providing transparency whatsoever on this.

Gloscon Solutions Pvt Limited is an 100% EoU in Software Services business since last 1 year with its development center in Ahmedabad. Company is leading provider of Open Source Web 2.0 solutions to international clients and is also building nearly 40 web properties. Gloscon holds a current account

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(Gold Customer) in Citibank N.A. Ahmedabad since November 2007.

Citibank's initial relationship manager Mr. Himanshu Mehta promised the best competitive rates of 5 paisa commission from the IBR(Inter-bank rate) on every transaction during the account opening. IBR rates are determined by market forces and fluctuate day to day and by the second. This means that on any Inward remittance that gets converted to Indian rupees, Citibank is supposed to take 5 paisa commission deduction from that instance's IBR rate per every inward dollar and transfer the rest in Gloscon's Current account. E.g. if $100 was transferred to Gloscon Indian Rupee account(assuming there are no other charges for sake of simplicity), and if IBR Rate at the time of conversion from $ to Rupee was Rs.40, Citibank would deduct 5 paisa per dollar and remit Gloscon current account at rate of Rs. 39.95 for every dollar. In this case, this would be Rs. 3995 credited to Gloscon's bank account. This is what should have happened legally.

It is important to note that when a remittance is done, Citibank just provides you instructions that $X was converted to your rupees at Rs. Yen rate. They do not provide you the time and IBR rate when conversion is done. This is where Citibank cheats as there is generally a significant fluctuation in daily IBR rates.

The matter came to light when Standard Chartered Bank(SCB) executives approached Gloscon Solutions Pvt Limited to lure the business and promised 4 paisa rate. Gloscon had recently got inward remittance of $60,000 via Citibank on 2nd May 2008. So just out of curiosity, SCB bank executive was asked what would company get in account if same transaction was done with SCB compared to that which already had happened in Citibank. SCB calculations showed that Gloscon would be getting much higher amount in Bank Account if Gloscon had done transaction through them. The difference was huge – approx Rs. 21,000 less in Gloscon account under Citibank transaction. If there was only 1 paisa variation between Citibank and SCB rates and for a transaction of $60,000 – the difference should be Rs. 600 and not Rs. 21000.

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Being concerned with the huge difference between the credited amount in Gloscon account at 5 paisa commission spread committed by Citibank against what SCB said Gloscon would have got at 4 paisa deduction with SCB, Gloscon Managing Director, Mr. Roshan Shah spoke on phone with Mr. Himanshu Mehta of Citibank and sent him number of follow up emails to clarify the matter and provide the IBR rate for 2nd May 2008 as well as the time the transaction happened.

Finally, Mr. Himanshu Mehta made a in person visit to Gloscon Office on 23rd May and informed that the commission rate that was applied on all transactions was 15 paisa and not 5 paisa. He even confirmed that all the past Inward international cheque remittance transactions in Gloscon Account were all done at 15 paisa commission spread. This was again done verbally.

In the same Mr. Mehta informed that Citibank System has a system glitch and he had written about the same to Corporate office via internal communication and he couldn't share that conversation. This means that the system is unable to record the commission spread properly. Mr. Mehta was unaware that this conversation was being recorded.

Mr. Mehta clarified that that the IBR rate when 2nd May transaction was done was Rs. 40.64 while Gloscon got the remittance at the rate of Rs. 40.37. This was still 12 paisa more commission charged because 40.64 - 40.37 =27 paisa (and not 15 paisa). Mr. Mehta promised that Citibank would refund this amount. Gloscon Managing Director Mr. Shah requested Himanshu to put all this in writing.

On 27th May after phone reminders following up on previous conversation and few email reminders from Mr. Shah to Citibank requesting to put things in writing, Mr. Himanshu Mehta provided details of 2nd May transaction of $60,000 along with IBR rates for 2nd May. Mr. Mehta obviously had been doing his homework all along and also provided IBR Rates via email that mentions the IBR rates at High for that day 40.78 and low at 40.50. The Gloscon transaction of 2nd May was done at 40.37 which falls in this range with 15 paisa

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spread (40.37 + 0.15 = 40.52 which is slightly higher than 40.50 and hence legally valid). The time of transaction was not provided.

On 3rd May Mr. Shah along with other 4 Gloscon executives were at Citibank premises for their Board Meeting. Being a Gold Customer, Gloscon had a privilege to use Citibank Infrastructure for board meetings. In between the Board Meeting, Mr. Himanshu Mehta himself had said that there was an inward remittance yesterday and has hit the account. Mr. Shah clarified the rate with Mr. Himanshu Mehta and he said "You are only at 5 paisa spread - we offer the best rates" and Mr. Shah thanked him and continued with the meeting.

On receiving 27th May email and going back to the conversation of 23rd May in Gloscon office and on 3rd May at Citibank Board meeting, Mr. Shah knew something was wrong and wanted to get to the root of it. One thing was clear that Mr. Himanshu Mehta did not keep his word of 5 paisa commission spread and the 15 paisa commission spread statement was made up. Why and what was going on? - was to be found.

Mr. Roshan Shah then sent email reminders asking Himanshu Mehta - the exact time when the 2nd May transaction was done and IBR rate at that time to be put on written record via email. While Mr. Shah already had the audio file of 23rd May in possession which Mr. Mehta was unaware of, Mr. Shah wanted to get everything clarified in writing. Citibank did not provide this information. It is noteworthy here that Mr. Himanshu Mehta already knew that when the Gloscon Inward Remittance transaction of 2nd May was done, the IBR rate was 40.64. He has been withholding critical information till date from putting it in written form.

Based on just 1 transaction and with revelation of fact that Citibank had a system glitch, it was clear that Citibank system was a big mess that could bring out a larger issue in light. But giving benefit of doubt to Citibank, Gloscon wanted to validate whether this was just 1 transaction or this is a larger problem that could potentially be causing Gloscon and other businesses

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lot of financial losses. Number of requests were sent to Himanshu Mehta to provide the Transaction details of all previous transactions and IBR rates at that time.

Mr. Shah wrote to Citibank Grievance Department a number of times. Mr. Shah also escalated the matter via email to Citibank Head Office as well as officers listed on Citibank website for Grievance Redressal namely Ms. Anjana Makkar and Mr. Julio Ribeiro. None of them responded and not even the Chennai Head office bothered to make a single call to Gloscon Executives to explain the matter. Grievance Department kept sending different service ticket numbers on every email and V Mythili – Manager of Grievance Department kept pushing the matter back to Ahmedabad team asking Gloscon team to follow up with Ahmedabad team.

During this process the Relationship Managers changed from Himanshu Mehta to Biju Thomas to Yogesh Mehta and Gloscon Team had to explain the matter over to different people - again a waste of time. None of them was willing to help Gloscon in providing the details of previous transactions and time they happened along with IBR rate at that time.

After repeated follow ups, Mr. Yogesh Mehta, the third relationship Manager in 3 weeks made a visit to Gloscon office on 18th June. Yogesh requested to forget the past incidents and start a fresh relationship going forward. Mr. Shah insisted that he needed the past transaction and IBR details before he takes this relationship any further. Yogesh promised to furnish the details of all previous transactions in 2 days.

Yogesh delivered the printed copy of Transaction details and historical IBR rates on 21st June to Gloscon office. He however did not provide the details of the time when Transaction happened.

The result was not surprising at all to Mr. Shah. There were previous 4 Foreign Exchange transactions in Gloscon account since November not considering the transaction of 2nd May 2008. Result was shocking. None of these 4 transaction had even 15 paisa commission spread even considering that from the day's Lowest IBR rate. This proves the fact that

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Mr. Himanshu Mehta had cheated Gloscon and the 15 paisa spread was never there and never promised. The fact is that only 5 paisa commission deduction was promised(being a Gold Customer) and knowing the fact that 2nd May transaction for which Gloscon Executive Team continuously asked for details did not fall in the 5 paisa range, Mr. Himanshu purposefully misrepresented the rate at 15 paisa commission spread deduction which made the 2nd May 2008 transaction look legally valid.

Citibank Ahmedabad team of Himanshu Mehta, Biju Thomas and Yogesh Mehta never seemed to have intention to give 5 paisa spread and deceived Gloscon by false assurances. They are in business of cheating people. After Mr. Himanshu Mehta promised to refund the difference amount during his office visit on 23rd May, Mr. Himanshu Mehta was again sent reminder by Mr. Dheeraj Dagliya – Director of Gloscon for refund amount on 2nd May transaction as well as all past transactions. There was no response in this matter and Citibank does seem to be gupling huge money this way. Himanshu later informed on phone that Mr. Biju Thomas was in charge and when Gloscon team tried to follow up, neither Biju nor Himanshu were reachable. Same was told to Mr. Yogesh Mehta on his visit on 18th June to refund the Money but he also said "Lets forget the past and lets form a new relationship"

Mr. Roshan Shah, submitted an application of criminal complaint under section 420, 120b, 406 of Criminal Procedure Code at Navrangpura Police Station against Citibank Head Office, Citibank Ahmedabad, Himanshu Mehta, Biju Thomas, Yogesh Mehta, V. Mythili, Anjana Makkar, Julio Ribeiro same day (21st June).

Obviously, it looks like Citibank has racked in millions and cheated many other clients across India. Citibank Acknowledged System issues, cheated the customer, promised refunds on difference but did not pay, Head office did not respond and they kept withholding information for a long time.

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Citibank Head Office, Ahmedabad Office and all the persons above are accused for:

1. Breach of Trust2. Jointly misrepresenting facts

3. Witholding and not sharing critical transaction details

4. Financial Fraud done despite aware of the fact that there was a system flaw and considering this if transactions were done manually, this would never have happened. Citibank Executives purposelly committed this crime.

5. Not refunding the amounts that was wrongly and purposefully debited and Mr. Yogesh Mehta requesting to forget the past matter.

When you look closely at this issue, this probably would mean that many other companies would be ripped off by Citibank the same way!

CITIGROUP   GURGAON   BRANCH   Fraud:

Summary:

Citi India has filed an FIR against one of its employees - Shivraj Puri. This Gurgaon branch employee is alleged to have siphoned off around Rs 350 crore from various HNI clients. The RBI, markets regulator SEBI and the police are investigating the fraud.

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 The company said that the fraud relates to unauthorized investment schemes, but hastened to point out that it was limited to a few accounts.

The Reserve of India (RBI), markets regulator SEBI and the police are investigating the fraud. The agencies have already identified links of one Citigroup employee to a few of the fraud hit accounts.

 How the Rs 350 crore was siphoned off:

   Puri used a forged SEBI letter to attract high net worth individual clients to invest in unauthorized schemes. These HNI clients have invested in these schemes and transferred the money with the promise of getting those extra benefits and the higher returns.

   This money of the clients was then transferred into three Citibank accounts under the name of Sheela Premnath, Diksha Puri and Premnath. The same clients' money was then further allegedly transferred to a few Delhi based stock brokers and these Delhi based stock brokers have allegedly invested this money into the stock markets and the mastermind behind this was Shivraj Puri, who is currently absconding.

  Citi's response to the fraud:

Citi has said that they are investigating into certain suspicious transactions and it has already isolated some of these transactions which they have identified. Citi said it is providing full support and assistance to all the authorities in their investigations. It said that the issue does not impact any of its other accounts and the transactions or the other customers in the bank.

   Some sources in Citi also indicate that they are currently working with the regulators very closely to try and get these HNI clients' money back that was invested. However, how much will be returned or how much can be brought back is something that is not known.

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Introduction:

Gurgaon: Dec 29: This was just what India wanted to hear, the perfect year-end gift. Yes, it’s yet another scam. This time it has come from the American banking giant Citibank. A case of possible fraud was reported at DLF-II branch, Gurgaon and is reportedly estimated at Rs 300-350 crore. 

The scam was engineered by none other than an employee Shiv Raj Puri who was working as a Relationship Manager for the past 7-8 years. The fraud came to light when the bank's Assistant Vice President Binu Soman noticed suspicious transactions in certain accounts at the Gurgaon branch. 

After a police complaint was filed, which stated that Puri had opened a joint account in the names of Prem Nath, Sehna Prem Nath, and Deeksha Puri in September 2009; initial investigations reveal that the joint account (no 5011666247) had transacted a huge sum of money. 

Moreover, there were reports of customers revealing that the bank was running some scheme that promised a very high interest rate. There were no such schemes running which led to an internal inquiry, according to the senior investigating officer.

Puri has also been charged with producing forged circulars from the Securities and Exchange Board of India (Sebi) to con people into investing in a non-existent scheme and making people believe that the scheme was only available in that particular branch. The Gurgaon police who is investigating the case said that major clients were conned and the fact that Sebi had not released any form of this sort was found. 

Police reports say that Puri managed to get large deposits and made fake bank slips and statements for the customers. Puri siphoned off the money to invest in the stock market. Citibank has intimated the Reserve Bank of India and Sebi about the fraud. 

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In a statement given out by the bank, "Identified suspicious transactions have been isolated and we are providing full assistance to the authorities in their investigations. This issue does not impact other accounts, transactions or customers of the bank. Subsequent to our complaint naming the involved employee and other external individuals who appear to be perpetrators in these suspicious transactions, Gurgaon police have registered an FIR."The police officer investigating the case said that 18 accounts have been identified and seized that was operated in the name of the four accused and carrying deposits worth Rs 3.85 crore. The accused Puri is absconding. The ACP (east), Rao Dalbir Singh, has issued a look-out circular (LOC) for Puri so that he can remain in the country. 

SEBI and RBI join hands for investigation:

Gurgaon:  The Reserve Bank of India (RBI) has begun a probe into the Rs 300 crore fraud at Citibank's Gurgaon branch.

RBI Executive Director G Gopalakrishna told reporters on Friday, that soon a statement in this regard would be made.  

Shivraj Puri, a bank executive, had duped customers into depositing Rs 300 crore in accounts set up by him making them believe they were investing in a scheme the bank was offering.

On Friday, the Gurgaon police questioned the Chief Financial Officer (CFO) of Hero group, Sanjay Gupta and representatives of brokerage firms Religare and Bonanza in connection with the scam. 

The two brokerage firms are where Puri had invested the money and the Hero Group is apparently the investor of largest chunk of money in one of Puri's accounts.  

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''Destination of the money is into these two broking firms,'' said SS Deswal, The Commissioner of Police, Gurgaon.

However, the Hero Group has denied any wrong doing, and issued a statement saying 

"These investments were made as part of routine treasury operation in what seemed like perfectly legal investment options. Hero Group is disappointed to learn that it has become a victim of the fraud under question."

According to the Gurgaon police, about 18 to 20 companies and 30 individuals had invested money in Puri's accounts in the last 14 months. The investment ranged from Rs 15 lakh and above. The police also say that Puri had initially even returned some of the money at a 20% interest to win their trust.

The scam was unearthed when a customer cross checked Puri's offer with Citibank.

The police now claim that more people will be questioned in the coming days.   Capital market regulator SEBI and the Reserve Bank of India (RBI) are working together to investigate the Rs 300-croreCitibank fraud, a top official said.

"The co-ordination has been happening between RBI and Sebi and the regulators are working jointly to understand what went wrong," KM Abraham, whole-time member with the securities market regulator said. 

"I suppose we will have a lot of lessons to learn from this (Citi fraud). There is somebody who is making investment decisions on behalf of investors," he added. 

Shivraj Puri, a relationship manager with Citibank's Gurgaon branch, has been accused of siphoning off the money from rich clients' accounts. 

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Mr. Abraham said the investigation capabilities of Sebi have been 'fairly sharpened'. "Investigation as a process has to adapt to the changing environment. Sebi is now in a much better position to investigate such frauds," he said. "The regulator has to learn a lot more to stay ahead of people who would perpetrate fraud," added. 

A part of the funds involved in the Rs 300 crore frauds at Citibank, allegedly masterminded by employee Shivraj Puri, was pumped into the real estate sector, sources said. Investigations into the fraud have revealed that Puri invested a part of the funds in property, police sources said, adding that the amount was small, compared to the money that went into the stock market. Puri, the relationships manager with Citibank, is reported to have paid token money to real estate companies for buying properties. 

Citibank fraud: Paying the price for privileges

For high net worth individuals (HNIs), who hire wealth managers to take investment decisions on their behalf, the alleged Rs 400 crore-fraud by Citibank’s wealth management team employee should come as a wake-up call.

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Shivraj Puri, the alleged mastermind behind the estimated Rs 300 crore Citibank fraud in the banks Gurgaon branch, is being taken away by police after he was remanded in seven days police custody by a court in Gurgaon on Thursday. PTI Photo

With more than $1 million (Rs 4.5 crore) of average investible assets each, HNIs are sought after by private bankers and stock brokers. Portfolio management services (PMS) offered by brokers invest in equities, and aim to give returns four-five per cent ahead of their benchmark. Wealth managers or private bankers invest across asset classes. In a good year, the returns can be excellent.

Re-looking at privileges

Besides higher returns, it is the exclusivity tag attached to wealth management -- having a dedicated relationship manager (RM) to service needs -- which makes HNIs opt for such services. But this can be a double-edged sword, with too much information passed to an individual.

Although providing customized service is the key to winning clients, the onus of doing the due diligence on their RM is with the client. "Most clients take precautions while running an identity check on the RM when they sign up. But they forget, most frauds are committed in the later years, once the clients start trusting their managers implicitly, " says ahead of a one-year-old private wealth management service.

So, a good idea is to schedule meetings (without the RM in tow) with department heads and other officials at the wealth management company. Ideally, the seniors should be aware of products and the returns promised by the RM.

Given the amount of money an HNI invests, he/she has the right to demand a meeting with seniors at the company," says

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Pawan Joseph, national sales-head, wealth management, Motilal Oswal Securities.

Most HNIs empower their wealth or portfolio management companies with a power of attorney (POA). This allows the company to go ahead and invest on behalf of their clients, instead of waiting for their approval.

The POA with a portfolio services company is limited in its mandate and used for settlement of the client's shares in his DP account. In case of a private banker, since it covers a wider gamut of services provided, the POA also allows transfer of money from a client's bank account.

Most HNIs have more money than time to peruse their paperwork. Such complacence works in favour of fraudsters, who get emboldened when they are sure the client won't cross-check the paperwork.

"With growing proximity, clients are prone to blindly signing cheques and expecting the RM to fill up other details. Handing over a POA with a free mandate in such cases can be potent," says Vinay Agrawal, executive director, Angel Broking, which also has a wealth management department.

Agrawal's advice to HNIs: Limit the leeway wealth managers have over your money and issue cheques to companies, not intermediaries. Any person from the wealth management firm asking you to do it should be enough to raise suspicion.

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Other ways to keep track of the paperwork is by paying attention to the statement of accounts. Some firms send a statement after every transaction. Also, once a product is bought, companies issue contract notes and these should reach you within 24 hours or a maximum of two to three days. Do not depend on an individual's word for it. Rather, check with the centralized help desk of the broker, mutual fund house, insurance company and others to confirm the purchase. HNIs should opt for the SMS alerts that companies provide for any transaction that takes place.

More cross- checking

Wealth managers are meant to dispense financial advice that suits the HNI's profile, but mis-selling of products or even selling the wrong product, irrespective of the person's risk profile, is not uncommon. When managers propose schemes with lucrative returns, you need to ask the right questions. Ask for information about other investment options with similar returns. If it is an existing scheme, ask for research reports to check past performance.

Even then, depending on the size of the investments, clients must insist on meeting at least two senior officials before actually putting the money on the table.

Another point to be noted is that no regulatory body endorses any individual scheme. If it is still done, as in the Citibank fraud where the employee showed an alleged Securities and Exchange Board of India endorsement of an investment product to win over clients, it takes only a few minutes to check this on the official website.

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Learning from the Citibank fraud:

The Citi fraud also highlights the danger in the fashionable view that a customer must only have one point of contact with a company. This can lead to extreme dependency on the ethical compass of one individual 

Most of you are by now aware of the fraud that unfolded at a Citibank branch near New Delhi. Similar to the one in the US involving Bernard Mad off, a number of high net-worth individuals here stood to lose a part of their savings. This continues a trend in which well-heeled and seemingly knowledgeable people are being taken for a ride by investment managers, and should lead to serious introspection by the companies involved as well as regulators.

The Citi and other frauds share some common features. First, there is the use of forged documents to fool customers. Given that there is a growing market for fake PAN cards, driving licenses, 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.

Investors also place undue reliance on their managers. Active fund managers on average add little value (a well-known study showed that a portfolio created by a monkey throwing darts at random performed as well as one created by a group of leading financial advisers). In an investment climate where outperforming the pack is extremely difficult, any scheme that promises extraordinary returns warrants close scrutiny.

You can’t wash your hands of your investment simply because you have a fund manager. Most investment frauds could have been avoided had the investors spent a few hours every month tracking their portfolio and their fund managers’ performance. One concedes that for most who have day jobs, it is difficult to spare even this much time. This underscores a somewhat

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jarring reality about investing—it is best suited for those who have the leisure to do it, and risky for ones who are otherwise occupied in earning a living.

The Citi fraud also highlights the danger in the fashionable view that a customer must only have one point of contact with a company. This can lead to extreme dependency on the ethical compass of one individual. In Citibank’s case, it may be a cause for introspection as to why the relationship manager single-handedly managed his customer relationships. Had others in the system been involved, warning signals of the fraud may have emerged earlier. Any definitive conclusion, however, will have to await the results of Citibank’s internal review.

On a more general level, this fraud highlights the fact that in the desire for growth, a large number of conventional risk mitigants are often obeyed only in letter and not in spirit. Regulators need to know that customer policies are in place, suspicious transactions are being reported, and the like. But the mad rush for growth can perpetuate a philosophy of doing no more than the minimal due diligence. In the Citibank case, questions asked about the source of the large funds that were flowing into the account of the accused’s relations would have immediately raised red flags.

Against this background, boards of financial services firms must introspect about the nature of their business. As lender or asset manager, the essence of banking is in its fiduciary responsibility. Critical to a bank’s functioning are control-related actions such as concurrent audits, daily reconciliations, segregation of duties, and so on. These ensure that virtually every transaction of the organization is subject to multiple checks and balances. They are also the less attractive operating aspects of the financial services business, compared with closing deals or making new investments. As a result, they are often given short shrift.

One hopes that after the Citibank incident, other organisations will reflect on the risks inherent in today’s loosely regulated investment management business.

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Citibank fraud a systemic failure: Complainant:

Sanjeev Agrawal, a high net worth individual whose FIR named Citibank CEO Vikram Pandit in the Rs.300 crore fraud in its Gurgaon branch, today said it was a "systemic failure" and the chief executive cannot escape responsibility.

He told a press conference here that the bank had offered him a "settlement" a few days ago on his loss of Rs.33 crore but they suddenly turned quiet on the offer.

"It is a systemic failure" and the CEO cannot escape from his responsibilities, he said when asked why he named top executives like Pandit and others in the FIR relating to the Rs.300 crore allegedly masterminded by Shivraj Puri, Relationship Manager in the Gurgaon branch.

Agrawal said he filed the complaint because  the bank had offered him a "settlement" against his Rs 33 crore loss but became silent when he tried to contact them."At one point in time they (Citi Bank) were very keen on settlement...(but) one fine day we found that that process is not working any more," Agrawal said. When asked what settlement was offered, he said "they didn't very clearly specify except that they wanted to know what it will take for us not to turn adversary."  The offer was made to him about a week back, he claimed.

Local police registered a case on the basis of an FIR naming Pandit and 10 other officials filed  Agrawal, Managing Director, Helion Advisors, that accused the top executives of criminal breach of trust and cheating.

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The others who have been named in the FIR include Citibank's senior officials CFO John Gerspach and COO Doughlas Peterson (both based in New York).The fraud at the bank's Gurgaon branch, involving diversion of depositors money into the stock market was uncovered last week.

On the prospects of recovering his money, Agrawal said he has been a long-time customer of the bank and "I would be very surprised if they left me in lurch".To a query if he would take the FIR to its "logical conclusion", he said "our goal is two-fold. One we want Citi Bank to own up this debacle that has  happened and to get compensation for losses."

Agrawal said that Puri, with whom he had been dealing with for sometime, had used the blank papers with his (Agrawal) signatures to make demand drafts by drawing money from his account.

He said he had a wealth management account with the Bank and Puri was giving him "soft copy" of his account statements from his official e-mail and hard copies to his chartered accountant.

Only after sometime, he could see a vast difference between the two accounts and then he started checking up with the bank, who told him that Puri was on leave.

CITIBANK CAUGHT IN RS.400 CR.

HOW FRAUD WAS COMITTED? 26

City bank’s relationship managers are said to have committed the fraud with the help of an external party, most likely a brokerage house that distributes investment products.

Funds generate by selling the product to some investment companies and individuals were transferred to accounts of some brokers, who utilized the money for their transaction.

The employees claimed the product were authorized by Citibank’s investment product committee and used forged bank document and letterheads to prove the same.

WHO ARE INVOLVED?

Employee named in FIR learnt to be working as a senior relationship manager in Citibank’s Gurgaon branch the staffer may have been supported by other relationship managers responsible for sales of investment product to high net worth clients of the bank.

WHO ARE AFFECTED?

Close to 40 clients including some corporate treasuries could be affected because of the fraud. It is unclear whether Citibank will compensate its clients for the losses.

EXPLANATION:

Citibank is caught in an estimated Rs. 400 core fraud and forgery by staff at its retail banking unit in gurgaon involving funds from wealthy individuals and corporate clients.

The fraud was discovered early the month of November when a customer told a relationship manager that he had invested in a Citibank scheme that promised high

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returns in a short period when no such scheme existed, said 3 people familiar with the matter.

Nearly 40 clients including some corporate treasuries could be affected because of the fraud but their identities are not known. It is unclear whether Citibank will compensate its clients for the losses.

Citigroup’s is the latest in a season of bribery, corruption stock manipulation and fraud cases dominating the financial sector usually associated with most bull market. Although a series of such cases including arrests of 8 finance sector executives last month in a bribes-for-loans scandal have taken the sheen off investor enthusiasm they are far away from the market scandals of 2001 and 1992 that crushed investor confidence.

One or more employees at Citibank’s gurgaon office are alleged to have forged the letterhead of the bank to peddle a scheme claimed to have been approved by Citibank’s investment product committee regulator to clients that could yield high returns in a short span ,said one of the persons familiar with modus operandi the funds generated by selling the produce to some investment companies and individuals were transferred to account of some brokers , who utilized the money for their transactions the people at Citibank involved in the process were supposedly paid bribes by those brokers they said.

The staff named in the police report is a relationship manager at the Gurgaon branch said an insider.

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Conclusion Mumbai: Citibank, which has been hit by a Rs 400 fraud at its Gurgaon branch, today said it is reconciling its accounts and working out a "fair compensation" for those customers affected by it. 

"This process will happen over a period of time. We would like to thank our customers for their patience and co-operation," the bank said in a statement. 

"We have since been in contact with our impacted customers and are committed to safeguarding our customers' legitimate interests," it added. 

The global banking major said that it has been reconciling amounts involved with impacted customers to arrive at the compensation package.

"We will also continue to support the investigating authorities fully until this matter is resolved and brought to its logical conclusion," the statement

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said. 

The bank has been in touch with its impacted customers and is fully committed to safeguarding their legitimate interests, it said in a statement here. 

"As we have stated earlier, we identified suspicious transactions at our Gurgaon Branch in early December and immediately reported the matter to law enforcement and regulatory authorities," the statement said. 

One of its employees, Shivraj Puri, is accused of luring 40 high net-worth individuals and corporate entities to invest in a bogus investment scheme on the pretext of high returns, while diverting the funds to the stockmarket. 

Victims of the fraud include big names such as the promoters of the Hero Group (Rs 250-crore) and Helion Advisors Managing Director, Sanjeev Agarwal (Rs 33-crore). 

Yesterday, Puri was remanded to 14 days judicial custody (till January 28) by a local court. He was initially taken into seven days police custody on December 30 last year after the scam was detected. 

Later, the police remand of Puri was extended for six days on January 6 and then, subsequently, for two days on January 12. 

Victims of the fraud include big names such as the promoters of the Hero Group (Rs 250-crore) and Helion Advisors Managing Director, Sanjeev Agarwal (Rs 33-crore). 

Puri is accused of luring about 40 high net-worth individuals and corporate entities to invest in his scheme on the false promise of securing sky-high returns for them. 

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The global banking major said that it has been reconciling amounts involved with impacted customers and is now commencing the process of working towards a fair compensation for them. 

"This process will happen over a period of time. We would like to thank our customers for their patience and co-operation. We will also continue to support the investigating authorities fully until this matter is resolved and brought to its logical conclusion," the statement said. 

Thank

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you

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