Citi Bank fraud: Sebi probes violation in income proof rules

Citi Bank fraud: Sebi probes violation in income proof rules

In connection with the alleged Rs 300-crore Citibank fraud, Sebi is probing whether the stock brokers collected from the accused his income proof documents, a mandatory requirement for trade in derivatives market.

The market regulator had made it mandatory in December 2009 for the brokerage firms to collect income proof documents from all their clients before allowing them to trade in derivatives segment of the market.

The preliminary investigations into the alleged fraud committed by Shivraj Puri, a senior employee at a Citibank branch in Gurgaon, has found that he diverted his clients' money into derivatives market.

Investigative teams from Sebi have already more than once questioned Puri as well as other parties connected to the fraud, including the officials from the bank and the two brokerage firms used by Puri -- Religare and Bonanza.

As per the preliminary probe, Sebi has found lapses on part of the brokerage firms in collecting all the required financial documents from Puri and others through whose accounts he invested in stock market, a senior official said.

The brokers have been asked by Sebi to furnish all the documents that they had collected from Puri, subsequent to which the regulator would check their veracity.

Most of these funds were invested into Nifty options -- a derivative product with the market benchmark index Nifty as underlying security, where the investor has no obligation to take the delivery and needs to pay only margin money.

In this derivative, investors bet on upward or downward move of Nifty and returns depend on accuracy of such bets.

As the derivatives trade involve large-scale transactions, there are greater chances of black money or money earned through dubious means finding way to stock market through derivatives, the official said.

This was the reason behind Sebi in December 2009 making it mandatory for all the brokerage firms to allow their clients to trade in derivatives only after submission of valid income proof.

In cases of discrepancies or the income profile not matching with the investment portfolio, the brokers are supposed to immediately inform the regulator.

Initially, brokerage firms had resisted implementation of these guidelines and agreed to abide by them only by mid 2010.

Brokers are supposed to collect these documents every year and these include copies of latest Income Tax Return Acknowledgment, Annual Accounts (last financial year for individuals, last two financial years for non individuals) and Copy of Form 16 in case of salary income.

Besides, the clients also need to submit a CA-certified net worth certificate for the latest financial year, salary slip of one month in current financial year, bank account statement for last six months, demat account Holding statement and other documents substantiating ownership of assets.

Two more employees identified in Citibank fraud case: Hero

Hero Corporate Service has said it has identified two more employees who could have colluded with its former Associate Vice-President Sanjay Gupta and Citibank employees in the Rs 300-crore fraud.

"Following an initial internal enquiry, two employees -- Ganpat Singh and Gaurav Jain-- working in the accounts department have also been identified to have been in possible collusion with Sanjay Gupta and Citibank employees," Hero Corporate Service said in statement.

They have been sent on leave with immediate effect by the company, it added.

"This is in addition to the suspension of Gupta by the company. Further appropriate action will be taken after the final outcome of the enquiry," it said

Earlier this week, Gupta was remanded to a five-day police custody in connection with the Citibank fraud case for allegedly investing about Rs 250 crore belonging to promoters of the Hero group companies.

The Gurgaon police arrested him under the section 120B of the Indian Penal Code that deals with criminal conspiracy.

According to the police, Gupta had invested around Rs 250 crore from different Hero Group companies and their promoters.

For this, Gupta had formed two finance companies -- BG Finance and G2S, and took commission of Rs 20 crore from Shivraj Puri, the alleged mastermind in the estimated Rs 300- -crore fraud discovered at the Citibank's Gurgaon branch, for investing the amount.

The police had last week called Gupta for questioning along with Puri.

Puri had confessed that Gupta was aware of the forged SEBI letter, on which the amounts were lured from high networth clients, the police had said.