Police probe fake demat accounts scam

Investors with physical shares fleeced, across states; Mumbai police look into role of RTAs, call for documents

It started with a complaint from Gujarat some months earlier. At the peak of the previous bull run in 2007, there was a flurry of shifts from physical shares to the dematerialised form. Soon after the shares were converted, they were sold. At that point, brokerage officials were hardly surprised by such activity in dormant holdings as share prices were at their peak and every retail investor was looking to make a quick buck from the frenzy on Dalal Street     

It was only after someone from Ahmedabad complained in 2013 about missing shares that brokerage officials realised a scam was afoot, leading to a complaint at the economic offences wing (EOW) of the police here, registered last August.   The scamsters would convert the physical shares into demat form without the knowledge of the original shareholders. They would then sell these shares through fake demat accounts they created in the names of the shareholders but over which the racketeers maintained control. Alternatively, the demat accounts would be created using false names. They would then apply for the demat shares to be transferred to these new accounts before selling these.  

MODUS OPERANDI

• Identify dormant investors with physical shares
• Create fake demat account
• Transfer shares to the account and sell them
• Police probing role of RTAs
• Have called for documents including transfer certificates

The suspects, many still at large, used information which police believe was likely to have been gleaned from registrar and share transfer agents (RTAs). EOW is investigating the role of officials from the RTAs — Karvy, MCS and Bigshare, which handled the bank-end activity of the companies whose shareholders were defrauded. A police official said they suspect officials from some RTAs to have been involved, since details and signatures required for the opening of such accounts could only have come from them.They have asked the RTAs for various documents associated with the accounts, including transfer certificates used in switching the shares.

Dharmesh Singh, the alleged mastermind, is still to be found. Another suspect, Rakesh Dikshit, has been arrested. The police have discovered 76 accounts linked to the suspects, with the size of the fraud currently estimated at Rs 10 crore. A police official said the amount was likely to go up as the investigation progressed. The fake accounts span multiple cities -- Kanpur, Varanasi, Surat, Vapi, in Karnataka.

Dattatreya Thopte, investigating officer for the case, declined to comment on specifics. “Interrogations are still ongoing,” he said.

In response to a questionnaire on the matter, a spokesperson for Karvy said they’d only read about the scam in the nedia and were still awaiting word from the police. “Soon after noticing the news clipping, we approached the EOW officials, as we were neither approached by them in the matter earlier nor were we spoken to by the media before publishing the said articles. The officials at EOW have sought time to provide the information requested for by us, on the ground that the matter is under investigation,” said the spokesperson.  A police official confirmed it was still in the process of reaching to Karvy on the matter. Karvy said their systems would have caught any such discrepancy.

 “Karvy has a multi-layered check across all its processes, with no room for deviation, making the whole system foolproof. We are confident that if at all any error has happened, it is completely in an external environment, on which we will have little or no control,” said the spokesperson.

MCS said they had only recently taken over the business of a company and the previous RTA might be to blame, a stand the evidence so far seemed to support, according to a police source.  “Recently we have come across an experience of similar nature with one of our client companies, which had shifted their RTA job from their old R&T Agent in favour of MCS recently. The mischief was made at the previous R&T agent’s end much before the RTA job was entrusted on MCS, it said.

Bigshare Services did not respond to an email query sent on Wednesday.