A Gurgaon Branch of Citibank Has Emerged as the Epicentre of a Multi

7/27/2019 A Gurgaon Branch of Citibank Has Emerged as the Epicentre of a Multi

1/10

A Gurgaon branch of Citibank has emerged as the epicentre of a multi-crore fake fixed deposit racket.

Shivraj Puri" a relationship manager at the DLF Phase II branch of the bank" and three others" have been

accused of diverting hundreds of crores of rupees from the accounts of a clutch of high-net-worth

individual and corporate clients over the last 12-14 months.

Shivraj created accounts for three other persons - Premnath" Sheela and Deeksha - in the same bank.

They are probably his relatives. Then he issued a circular on a forged letter pad of Securities and

Exchange Board of India (SEBI) and asked some customers to deposit the funds in these three fake

accounts.

He lured them by saying that it would give them the highest possible returns. Later he transferred all

money from these fake accounts to his account"" said a senior police officer.

Citibank has suspended Puri and reported the alleged fraud to the banking and capital markets

regulator. Puri has been with Citibank for seven years now.

"We have registered a case of cheating" fraud and criminal conspiracy against Shivraj Puri. We are alsoexploring other aspects of this case. Some other employees of the bank may also be involved"" the

officer added.

"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 the Gurgaon police has registered an FIR"" said a Citibank spokesperson.

"We recently initiated an investigation into a certain set of suspicious transactions based on documents

forged by an employee involving a few accounts in our Gurgaon branch. We immediately reported the

matter to all

the relevant regulatory and law enforcement authorities.


2/10

Identified suspicious transactions have been isolated and we are providing full assistance to the

authorities in their investigations"" the spokesperson added.

Gurgaon Police have registered a case under the section 420" 467" 471 and 120 b of Indian Penal Code

and have alerted other agencies to seize his accounts. Airports across the country have also been alerted

17 months on, Citi scam accused walks out of jail

Deevakar Anand & Leena Dhankhar, Hindustan Times Gurgaon, June 01, 2012

First Published: 01:11 IST(1/6/2012) | Last Updated: 01:13 IST(1/6/2012)

Ads by Google

Investment Banking Course

www.educorporatebridge.com - Financial Modeling, Equity Research Private Equity, Credit Research

EMAIL

PRINT

FONT SIZE

A | A+ | A-

SUBSCRIBE BREAKING NEWS ALERT

0

COMMENTS

0

0


3/10

Advertisement

Former bank executive Shivraj Puri, the prime accused in the Rs. 400-crore Citibank fraud case, was

released on bail on Thursday from the Bhondsi jail near Gurgaon, where he had been lodged for the last

17 months.

He and his father Raghuraj Puri, a co-accused in the case, were granted bail by the Punjab and Haryana

High Court on Monday.

While Raghuraj was released on Wednesday, Shivraj's release came after his lawyers submitted hispassport and furnished bail sureties of Rs. 2 lakh each for two separate FIRs under which he was booked

for forgery and cheating in December 2010.

The surety amount was decided by Gurgaon chief judicial magistrate (CJM) Rajesh Sharma on Thursday.

The high court, while granting them bail, had fixed Rs. 5 lakh bail surety for Raghuraj while it had left it

to the discretion of the CJM to decide his sons bail amount.

The court had, however, said that he should be released on a heavy bond amount.

The Puri family is believed to be in financial crisis due to the ongoing litigation.

After being released, Shivraj told Hindustan Times, Being in jail has taught me to value freedom. I

always had faith in the judiciary. However, this is only a temporary relief.

Puris uncle had come to pick him up from jail and reportedly dropped him at his (Shivrajs) house in DLF

Phase 4.


4/10

The high court had earlier granted anticipatory bail to Shivrajs mother Deeksha.

The only co-accused still behind bars is Sanjay Gupta, former vice-president of Hero Corporate Services.

Shivraj, a former relationship manager with Citibank, had allegedly siphoned off around Rs. 400 crore of

various customers to some fictitious accounts.

Puri was booked under sections 420, 467, 468, 471 and 120B of the Indian Penal Code (IPC) early this

year along with his parents and Gupta on a complaint filed by Citibank officials and a high net worth

account holder.

Raghuraj was the managing director of a Kolkata-based firm, Normans Martin Brokers Pvt Ltd, through

which Shivraj allegedly used to divert money into stock markets.

Unravelling Shivraj Puris web

Unravelling Shivraj Puris web

Tamal Bandyopadhyay

Comment E-mail Print First Published: Mon, Jan 10 2011. 12 17 AM IST

ALSO READ

Sebi skips nine directors in BoR show-cause proceedings

Updated: Mon, Jan 10 2011. 12 17 AM IST

Mumbai: Roughly three weeks before a first information report (FIR) was filed by Citibank NA against

Shivraj Puri, a relationship manager at its Gurgaon branch, in the Rs400 crore fraud case he is suspected

to have masterminded, the bank smelt a rat.

An employee at the Gurgaon branch received a call from a fellow professional at a competing bank

enquiring about a solid scheme that Citibanks wealth management division was selling, offering 2-3%

monthly returns. Such returns were too good to be true.

Also See (Graphic)


5/10

Puri was suspended immediately and a police complaint was lodged about suspicious transactions,

forgery and criminal activities on 5 December. The regulators, both the Reserve Bank of India (RBI) and

the Securities and Exchange Board of India (Sebi), and the finance ministry were informed about the

alleged fraud over the next few days.

Pramit Jhaveri, the 47-year-old head of the US-based banks Indian operations, could not afford to sit onthe case.

Foreign banks do not enjoy red carpet treatment in India. They are seeking a bigger presence in the

worlds second fastest growing major economy, where consumer and corporate demand for credit is

increasing as more and more people buy new homes and cars, and companies expand through capacity

additions and acquisitions.

The banking regulator has been conservative. RBI had committed to review its policy on foreign banks in

2009, but that was postponed in the wake of the global credit crisis that followed the collapse in

September 2008 of US investment bank Lehman Brothers Holdings Inc. RBI is now willing to allow

foreign banks to have larger exposure in India, but the proposal has not yet received the governments

nod.

Anything that tarnishes the image of a foreign bank in Indiathat too of the 108-year-old Citi, the

countrys largest foreign bank by assetswill only jeopardize the plan.

Ever since he took over as India head in April 2009 (till then he was heading Citis investment banking

division) after the departure of Mark T. Robinson, Jhaveri has been grilled by the media on his plan to

sell CitiFinancial, the consumer banking arm that suffered losses as bad assets piled up.

Almost overnight, the focus has shifted to the alleged rogue relationship manager Puri, who seems to

have single-handedly taken about 30 investors for a ride and channelled around Rs400 crore to the stock

market.

Between 5 December, when the first police complaint was filed, and 27 December, when Puri was

arrested, the bank tried to ringfence the problem transactions; appointed one of the big four audit firms

to conduct a forensic audit of all transactions related to wealth management; hired law firm Amarchand

Mangaldas for legal counsel; and even made Puri sign agreements with some clients who had lost

money, promising to return their wealth.

A seven-year veteran at the Gurgaon branch that was opened in 2002one of 12 Citi branches in

northern India Puri, in his early 30s, started his game sometime in the second half of 2009, but theflow of money became bigger and bigger from September 2010 when the Sensex, the benchmark equity

index of the Bombay Stock Exchange, started rising. The Sensex rose some 17% since September to

record its lifetime closing high of 21,005 on 5 November.

The Premnath scheme


6/10

Puri channelled money into the stock market through two ways. First, he enticed customers with a fake

circular purported to have been sent by the capital market regulator, offering an attractively high fixed

interest scheme, promising 2-3% returns per month.

The forged circular also mentioned a custodian account run by one Premnath that was passed off as an

approved channel to route investor funds. Premnath is Puris grandfather.

Once the money was deposited in Premnaths account, it flowed immediately out of it into three other

accounts kept with Citibankin the names of Sheila Premnath, Deeksha Puri and Shivraj Puri himself.

Deeksha is Shivrajs mother and Sheila his grandmother.

In the third leg of the transaction, the funds moved out of these accounts to brokerage accounts Puri

kept with firms such as Religare Securities Ltd, Bonanza Portfolio Ltd, India Infoline Ltd and Normans

Martin Brokers Pvt. Ltd. The last one is owned by Raghuraj Puri, Shivrajs father.

All three legs of a transaction would be completed within one working day. The bulk of the money was

routed through the Premnath account and not all customers were Citibank customers. Puri also madeabout half-a-dozen customers of Citibank sign blank cheques and drafts and other financial instruments,

and used these to transfer money out of their accounts directly to the brokerages to be invested in the

market.

Well-known venture capitalist Sanjeev Aggarwal is one of them. Aggarwal, managing director of venture

capital firm Helion Advisors Pvt. Ltd, filed a police complaint a nd named Citis Indian-born chief

executive officer Vikram Pandit, chairman William R. Rhodes, chief financial officer John Gerspach, chief

operating officer Douglas Peterson, and Jhaveri, claiming the alleged scam was a systemic failure.

Aggarwal claims to have lost Rs33 crore and alleges that it wouldnt have beeen possible for an

employee to commit fraud of this magnitude without the knowledge of the bank.

He has been a Citibank customer since 2002 and a wealth management customer since 2004. He met

the press in Delhi last week and claimed that the bank went back on an initial offer of a settlement

against his Rs33 crore loss.

Outsiders role

Puris police custody has been extended and so far no other employee of the bank has been identified as

an accomplice. But there are outsiders who seem to have played a role enticing customers. Sanjay

Gupta, associate vice-president, Hero Corporate Service Ltd, is one of them.

According to the police, there is a clear money trail moving from the Premnath account to entities such

as G2S Management Consultants and BG Finance, owned by Gupta. He, too, is currently under police

custody. The promoters of the Hero Group have lost Rs28.75 crore. The group said it was a victim of the

multi-crore fraud and that some of its promoters had been duped by Puri.


7/10

According to the Hero Group, the investments were a part of routine treasury operation in what

seemed like perfectly legal investment options. There is suspicion that Gupta may have influenced the

decision to put money in the Premnath scheme.

This is something not unique in India. Two years ago, many small and medium enterprises lost money in

exotic structured derivative products and in quite a few cases, the chief financial officers (CFOs) of thefirms played a critical role in buying such products as many senior executives did not understand them.

Some of the CFOs enjoyed cutbacks from banks that sold the products.

Both RBI and Sebi have been investigating the fraud, and trading data from exchanges have been

summoned. Puri, it seems, dabbled in Nifty futures and options aggressively.

According to Religare, Puri opened his account in December 2009, and all regular norms, including

know your customer (KYC) norms, were followed. The brokerage also says he traded only in

derivatives. Although the account has been frozen recently, trading had stopped many months back

and as on 15 October 2010 the balance had come to paisa 30 (Rs0.30) in his account. The brokerage

also says that all information on this account was reported several months bank in compliance of

Prevention of Money Laundering Act requirement.

Brokerages are required to report any suspicious transaction to the Financial Intelligence Unit (FIU)the

national agency responsible for receiving, processing, analysing and disseminating information relating

to suspect financial transactions to enforcement agencies and foreign FIUs.

Gullible investors

How could Puri carry on his business without being detected for so long? The Premnath scheme was too

good to be true, but the gullible and greedy high networth individuals who bought into it chose not to

question it. The guaranteed return was so high that they did not mind signing cheques and making

electronic fund transfers to an individual account touted as a custodian account.

They also did not question the obvious discrepancy that would have been visible between the original

Citibank monthly statement of accounts that they would have received directly from the bank and the

fake Excel sheet statements that Puri was sending them.

While police authorities and regulators are getting to the bottom of the fraud, there is no denying the

fact that the rogue relationship manager has dealt a blow to the fledgling wealth management industry

in India, a nation seeing the highest growth in the number of millionaires over the past few years.

Banks are not allowed to offer portfolio management services; they typically sell financial products of

insurance and asset management firms. They do not have any discretion on where to put clients money

and can only advise them on investment avenues for a fee. Citi, which started its wealth management

services in 1997, has possibly the largest such business among banks, selling products of 22 asset

management firms.


8/10

Typically, a relationship manager of Puris experience earns Rs12-15 lakh a year, and a portion of the

salary is variable, depending on how much business one generates. This can encourage one to entice

investors with complex, structured schemes offering high returns, but Puris case has been differenthe

was not routing the funds through the bank.

He was not looking for a higher variable pay, but was looting investors. Citi insiders are hopeful that apart of the money can be recovered and say the bank will follow the law of the land when it comes to

compensating investors.

The Indian central bank has a compensation policy for such cases, but the nuances arent clear in this

case. The extent of losses investors may end up suffering isnt known. Nor is the extent of Citibanks

liability clear.

Unanswered questions

Bernard Lawrence Madoff, the former stock broker, investment banker and non-executive chairman of

the Nasdaq, who was sentenced to 150 years in prison in June 2009 for a $65 billion (nearly Rs3 trilliontoday) fraud, operated the worlds largest Ponzi scheme for at least two decades.

Madoff admitted in his March 2009 guilty plea that the essence of his scheme was to deposit client

money into a Chase Manhattan account rather than invest it and generate steady returns as clients had

believed.

We dont know how Puri could offer such high returns that he did to his clients.

Was he using a new investors money to pay an old investor, or was he actually making enough money

from the market? Why did the investors fail to see through fake bank statements and the forged Sebi

circular? Was it greed or something else? Why did Citi have to wait for a phone call from another wealthmanger to detect the fraud?

Even an insignificant amount of inflow and outflow of money to and from any Citi account triggers a text

message on mobile phones and a mail on the Internet. Why was there no such alert when money was

credited to Premnaths account and from there flowed into three other accounts within a day?

Many of these questions will be answered once the investigations are complete. For the moment, Citi is

as much as a victim of the fraud its clients, but the big job for Jhaveri now is to regain the confidence of

its elite clients and refurbish Citis image, which claims to be a bank that never sleeps. It cant afford to

be caught napping.


9/10

Rs.300 Crore CitibankFraud

Shivraj Puri

Last weekCitibank India filed a police complaintstating that Mr. Shivraj Puri, an employee of Gurgoan branch had

siphoned of money from 20 high net-worth investors (HNI) amounting to Rs 300 crore (USD 67 million). Mediaupdates of police investigation show that police are having some success in cracking the case. I thought let me

provide the case details and the implications of the case to Citibank and other related parties.

Case FactsHere is a summary of case published to date. Mr. Shivraj Puri is a Senior Relationship Manager in Citibank

Gurgoan branch. He used a forged notification of Securities & Exchange Board of India (SEBI) stating that few

select clients would earn higher returns (18% to 20%) if they invested in his suggested schemes. He invested the

money obtained from HNI in the stock market in his personal capacity over a period of few months. Presently,

information of the period of fraudulent activity is not available.

Up to now the main client affected by the fraud is Hero Honda group and the amount diverted is to the tune of Rs

200 crore (USD 44.67 million). Mr. Sanjay Gupta, Assistant Vice President in the accounts office of Hero Corporate

Services was arrested yesterday. Mr. Sanjay Gupta is purported to have formed two finance companies BG Finance

and G2S Consultancy and diverted Hero group promoter funds in these two companies. These funds were then

fraudulently invested by Mr. Shivraj Puri of Citibank. Mr. Sanjay Gupta has allegedly taken Rs 20 crore (USD 4.46

million) as commission from Mr. Shivraj Puri for diverting these funds. It is suspected that Mr. Sanjay Gupta was

aware of the forged SEBI letter but recommended the investment to a number of people.

Other details reveal that funds were transferred to Mr. Puris wife, other relatives account and some

benami (fictitious accounts). Mr. Shivraj Puri used Religare and Bonanza brokerage firms for investing the money in

stock market. Religare stated the Mr. Puri has been a client since December 2009.

SEBI investigators have commenced investigating Mr. Puri. RBI has demanded a fraud report and impact from

Citi and may take an independent review of Citi operations.

An Analysis of Issues
http://http/www.ndtv.com/video/player/news/citibank-employee-in-rs-400-cr-fraud/184590?cphttp://http/www.ndtv.com/video/player/news/citibank-employee-in-rs-400-cr-fraud/184590?cphttp://http/www.ndtv.com/video/player/news/citibank-employee-in-rs-400-cr-fraud/184590?cphttp://timesofindia.indiatimes.com/india/SEBI-to-grill-Citibank-fraudster-Shiv-Raj-Puri/articleshow/7201669.cmshttp://timesofindia.indiatimes.com/india/SEBI-to-grill-Citibank-fraudster-Shiv-Raj-Puri/articleshow/7201669.cmshttp://soniajaspal.files.wordpress.com/2011/01/shivraj-puri.jpghttp://timesofindia.indiatimes.com/india/SEBI-to-grill-Citibank-fraudster-Shiv-Raj-Puri/articleshow/7201669.cmshttp://http/www.ndtv.com/video/player/news/citibank-employee-in-rs-400-cr-fraud/184590?cp


10/10

Impact on Profits: As per theaudited financial statements as on March 2010 the net profit of Citibank India was

Rs. 860 crore (USD 192 million). If Citibank has to absorb the loss of the fraud and payback to the clients, its

profitability for the year will be impacted negatively. Presently, since the main loss is of Hero Honda group, and its

employee is involved in the fraud, the whole burden may not be on Citi. The second aspect being stated is that the

shares held in various demat accounts by Mr. Puri will be identified and the accounts frozen(19 accounts have been

frozen till date). This will enable partial recovery of the estimated fraud loss.Segregation of Duty: TheRelationship Manager of Citibankas per the details available on Citi website is a one

point contact with the Bank. The Relationship Manager is backed by a team of experts in the fields of investments,

insurance, treasury and foreign exchange services. There appears to be lack of controls and supervision on the

activities of the Relationship Manager. From the looks of it, the Relationship Manager is selling the investment

concept, obtaining funds, investing them and monitoring the accounts. This shows that there is no segregation of

duty for the different functions. SEBI and RBI could both question the investment management department

functioning.

Know Your Customer (KYC): BothSEBIandRBIhave issued guidelines for Know Your Customer.

KYC procedures mandate that asset management companies should review cases of clients where the source of the

funds is not clear or not in keeping with clients apparent standing /business activity. If in this case, funds from

Citi customer accounts were being diverted to accounts in Citi (for example, Mr. Puris relatives or other fictitious

accounts) then there should have been checks in place to question the business validity of the transactions. On the

other hand, the brokerage firms, Religare and Bonanza should have questioned the source of funds of Mr. Puri as he

is a salaried employee. Although, they are stating that KYC procedures were followed.

Suspicious Transaction Monitoring: According to RBI and SEBI guidelines, a bank is required to have systems in

place to monitor suspicious transactions and there is special emphasis on high net-worth investors (HNI). For

HNI the nature of activity of the customer should be monitored by the bank and suspicious transactions reported to

RBI if money laundering is suspected. In this case, questions can be raised on the nature of systems and

procedures in place to monitor suspicious transactions. SEBI and RBI could raise questions on the accuracy and

validity of suspicious transactions monitoring reports submitted by the bank.

Functioning of Risk Management Departments: RBI guidelines specify that banks should have proper fraud

monitoring, compliance and risk management functions. The responsibility for establishing and maintaining the

fraud risk function rests with the CEO. In this case, the fraud was perpetuated over a few months (specific dates not

available) and the fraud department was alerted by the customer complaints. This raises questions on fraud detection

and monitoring procedures implemented at the bank. The bank could face some tough questions from RBI regarding

the fraud and compliance department functioning.

Citi definitely is in a soup and as the investigation unfolds, we will know the full story. I am expecting a few more

skeletons to topple out. Will definitely keep you updated on the happenings. Share your opinion about the case here.
http://www.online.citibank.co.in/products-services/investments/Citibank-financial-31Mar2010-for-Website.pdfhttp://www.online.citibank.co.in/products-services/investments/Citibank-financial-31Mar2010-for-Website.pdfhttp://www.online.citibank.co.in/products-services/investments/Citibank-financial-31Mar2010-for-Website.pdfhttp://timesofindia.indiatimes.com/city/delhi/Rs-5cr-Puri-familys-bank-balance/articleshow/7199118.cmshttp://timesofindia.indiatimes.com/city/delhi/Rs-5cr-Puri-familys-bank-balance/articleshow/7199118.cmshttp://timesofindia.indiatimes.com/city/delhi/Rs-5cr-Puri-familys-bank-balance/articleshow/7199118.cmshttp://www.online.citibank.co.in/http://www.online.citibank.co.in/http://www.online.citibank.co.in/http://www.sebi.gov.in/circulars/2010/mastercircular/MasterCircular.pdfhttp://www.sebi.gov.in/circulars/2010/mastercircular/MasterCircular.pdfhttp://www.sebi.gov.in/circulars/2010/mastercircular/MasterCircular.pdfhttp://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5783http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5783http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5783http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5861http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5861http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5861http://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=5783http://www.sebi.gov.in/circulars/2010/mastercircular/MasterCircular.pdfhttp://www.online.citibank.co.in/http://timesofindia.indiatimes.com/city/delhi/Rs-5cr-Puri-familys-bank-balance/articleshow/7199118.cmshttp://www.online.citibank.co.in/products-services/investments/Citibank-financial-31Mar2010-for-Website.pdf

Documents

A Gurgaon Branch of Citibank Has Emerged as the Epicentre of a Multi