Police arrest two employees of firm operating illegal scheme
A foreign exchange trading scam in which investors have potentially suffered losses amounting to several crores has been unearthed in Bangalore.
Sources in the police confirmed that four First Information Reports (FIRs) have been filed and two employees of the company operating the illegal scheme arrested. Police sources confirmed that the FIRs had been filed before the Fourth Additional Chief Metropolitan Magistrate, based on complaints by several investors at the Ashoknagar police station.
They confirmed that the scheme is a serious infringement of the Foreign Exchange Management Act (FEMA), which prohibits resident Indians from trading in foreign exchange.
Bangalore-based Rochester Investment Consulting Pvt. Ltd. lured investors seeking quick returns from a volatile forex market since 2009. Several investors and an ex-employee of the company told The Hindu that the company funnelled their investments to Master Field Financial Consultants, a company based in the British Virgin Islands, a tax haven.
Rochester’s modus operandi was to lure customers through ads with a promise of high returns on investments. Krishna Kishore Reddy, a former employee at Rochester, told The Hindu that investments were routinely transferred to Master Field’s account in the Singapore branch of the Development Bank of Singapore (DBS). “The first couple of trades for most investors (relatively small amounts) invariably yielded profits, but after the third or fourth trade, we gradually lost our money.”
No trade at all
Asked about the modus operandi, Mr. Reddy said the actual software platform was a “dud”, one on which no real forex trade took place at all. The software was provided “free” by Rochester, he said regretfully. He was so taken in by the initial profits, he got 18 more investors to invest in the illegal scheme.
Attempts to speak to Rochester’s senior officials were unfruitful.
Mr. Reddy said investors were told in June 2011 that the company’s agreement with Master Field stood terminated. Employees were told that the new partner, Pacific Index International Ltd., would handle the investments. However, Rochester’s associates — Master Field and Pacific Index — shared the same postal address in the Virgin Islands. Both also had bank accounts in the same branch, he said.
They lost heavily
A couple of other investors also confirmed that they initially profited from the scheme, before losing heavily. “Rochester did not allow me to encash the profit from my first trade. But after a few more trades, my entire investment of about U.S. $20,000 (Rs. 11.39 lakh) was wiped out,” said Priya Sridharan, a postgraduate in International Finance.
N. Dwarkanatha, an expert in project finance, claimed he lost his entire investment of $75,000 (Rs. 42.75 lakh) made between December 2011 and March 2012. Mr. Reddy said Rochester was only the tip of the iceberg; at least 15 similar schemes were still operating in Bangalore.