EOW joint commissioner says whenever you come across an organisation offering unusually high returns, it should be considered a major red flag
Pic/Kirti Surve Parade
Nishith Mishra, joint commissioner of the Mumbai Police’s Economic Offences Wing (EOW), explained why schemes such as the Torres scam, where thousands of investors across Mumbai, Navi Mumbai and Thane are suspected to have been duped of around Rs 1000 crore, continue to be created. The Mumbai police have so far received complaints amounting to only Rs 40 crore in the investment scam.
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Officials believe many investors are hesitant to come forward due to fear or social pressure. Mishra shed light on red flags investors should watch for, ways to protect oneself and how the EOW is gearing up to use the recently implemented Banning of Unregulated Deposit Schemes (BUDS) Act to nip such scams in the bud.
Excerpts from the interview
Ponzi schemes seem to persist despite actions taken by regulatory agencies and people continue to fall prey to them. What do you think is the reason for this and what are the red flags to watch out for?
People are inherently attracted to the idea of making quick money. As a result, they often fall prey to such schemes without verifying their sustainability, driven largely by greed and the desire for fast profits. The key difference between legitimate investments and Ponzi schemes lies in the returns they promise. The returns in the latter are usually exorbitantly high compared to those of legitimate, well-established schemes.
For example, gold bonds or RBI-mandated schemes offer stable returns, while Ponzi schemes often promise returns that exceed these by two or three times, or even more. This should raise a reasonable suspicion that the scheme may be fraudulent. To put it in perspective, when buying property, people from all walks of life typically conduct a title search to ensure its legitimacy.
Similarly, before making an investment, individuals should verify the company’s background—such as its revenue model and the type of returns it claims to offer. This due diligence can help filter out potentially fraudulent schemes early on. We would like to make an appeal to everyone: whenever you come across an organisation offering unusually high returns, it should be considered a major red flag. Please report such instances to the relevant authorities so they can monitor and investigate them. Additionally, I urge Torres investors to come forward and share the details of their investments.
What steps is the EOW taking to ensure that people are aware of such schemes?
We are planning to organise an awareness programme focused on Ponzi schemes, with a primary emphasis on investigation. The cyber department has already been conducting significant awareness efforts related to fraud, which includes Ponzi schemes. We publicly disclose the modus operandi of scamsters through the press and electronic media to help educate the public.
The recent Torres scam operated openly despite initial red flags flagged at the Shivaji Park police station. Do you think this could have been prevented earlier? Could the BUDS Act have been effectively utilised to stop this scam sooner?
I do not have jurisdiction to comment on the Shivaji Park police station, as they are conducting their own internal inquiry. Our team is currently studying the recently implemented Act with the help of legal experts to ensure it can be effectively utilised to prevent such scams. In the case of Ponzi schemes, it is essential to have a complainant who provides evidence to support the claim of being defrauded, as without this, the case may not hold up during the trial.
How were the Torres scam victims lured into buying fake jewellery? What is the scale of the racket?
A stone, initially worth around Rs 200-Rs 300, was promised to be worth Rs 25,000 to Rs 50,000. Once people bought the stone and invested in it, the stone and the money were kept by operators, and in return, they were promised monthly returns ranging from three per cent to seven per cent. Early investors did receive returns, and as the scheme progressed, they were encouraged to recruit more investors, offering rewards such as flats, cars, expensive iPhones and additional commissions.
While early investors saw good returns, those who joined later only received returns for a couple of weeks before the scheme collapsed and the operators fled. Initially, the scheme attracted fewer investors, but as they started offering bigger rewards—like cars and flats—everything was heavily promoted on social media, which helped the scheme thrive for over a year. Currently, we have over 2000 complainants, with an estimated fraud amount of R36 crore reported to us. We believe this number will increase. Once we obtain the bank details of the scammers, we will be able to determine the exact amount that people have been defrauded of.
This scheme was both a Ponzi scheme and a form of MLM (multi-level marketing). In a Ponzi scheme, money is taken from new investors and used to pay returns to earlier investors, without any actual investment taking place. As the scheme progressed, a pyramid structure was created, where each investor was encouraged to bring in new investors, with the original investors earning commissions from their recruits. Torres operated under the guise of a luxury jewellery business, targeting middle-class citizens. However, the showroom never actually contained any jewellery; it only displayed stones, which should have been the first red flag for investors.
What action will the EOW take to ensure that the Ukrainians behind the scam are brought to justice under Indian law?
There are established procedures in place, and we are seeking assistance under international treaties to ensure that those who have fled are brought back to India to face the law. Currently, 11 foreign nationals are still absconding. We are also exploring the use of the MLAT (Mutual Legal Assistance Treaty) and LR (Letters Rogatory) to enforce criminal laws through Bharatpol, an international portal for police cooperation.
Indian suspects claim to be whistleblowers and that they were trapped by the foreigners.
We need to assess the situation from the perspective of the investors and witnesses. We will investigate whether these individuals were actively involved in luring people and what knowledge they had about the nature of the operations. At this stage, it is premature to draw any conclusions.
In recent years, how many cases of Ponzi schemes have been reported to the EOW? What is the total amount involved, and what is the current status of these cases?
In the past ten years, over 100 Ponzi scheme cases have been registered under the MPID Act, 1999, which protects the interests of depositors in financial institutions within Maharashtra, and are currently being investigated by the MPID unit of the EOW. These cases involve more than 2.6 lakh victims. The total amount involved in these cases exceeds Rs 2000 crore.
Do you think it is time to include financial crimes under organised crime laws?
Yes, this is clearly an organised crime, and we are currently examining whether it meets the criteria for organised crime as defined under the law. This includes determining if the individuals involved are repeat offenders and if the court has taken cognisance of at least two charge sheets. If the case fits these parameters, we will consider applying those provisions. So far, we are utilising the MPID Act. The primary objectives of the Act are to punish financial institutions that fraudulently default on repaying depositors and to attach and sell the properties of these institutions to repay the affected depositors.
What is the BUDS Act?
According to the EOW, the Banning of Unregulated Deposit Schemes Act, 2019, was enacted to prevent illegal financial activities, such as multi-level marketing scams, chit funds, real estate frauds and other financial crimes. It provides a mechanism for setting up surveillance systems to detect and prevent such fraud. The Act includes provisions for establishing special courts, similar to MPID courts, to address such cases at the district level.
It also empowers district collectors to identify and attach properties of individuals found accepting deposits or running unregulated schemes. Section 5 of the Act, titled ‘Wrongful Inducement in Relation to Unregulated Deposit Schemes’, states: “No person, by whatever name called, shall knowingly make any statement, promise, or forecast that is false, deceptive, or misleading in material facts or deliberately conceal any material facts, to induce another person to invest in or become a member or participant of any unregulated deposit scheme.”
What is the MPID Act?
The primary objectives of the Maharashtra Protection of Interest of Depositors Act, 1999, are to punish financial institutions that fraudulently default on repaying depositors and to attach and sell the properties of these institutions to repay the affected depositors. The maximum punishment under the MPID Act is six years and it is difficult for a person to secure bail once booked under it.
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