Did HSBC Bank resort to toxic churning and illegitimate transactions to earn commissions?

Two complaints of high net worth individuals have shown that the bank has possibly flouted rules and taken signatures on blank forms to execute transactions to churn the mutual fund portfolio and earn huge commissions

Over a year back we wrote about how HSBC Bank took Ms Suchitra Krishnamoorthi, a well-known singer and actor, for a ride over a five-year period by promising an extravagant assured return of 24% from mutual funds as well as insurance. (Read: HSBC loots Suchitra Krishnamoorthi after big promises of 24% returns) However, far from delivering such returns HSBC Bank continuously churned her portfolio. In a similar case, another high net worth individual (HNI) based in London, found out abnormal churning of mutual funds in his portfolio that was managed by HSBC bank. Both are HNIs who were made to sign a power of attorney (POA) in favour of HSBC to handle their investments smartly. They believed in the brand name of HSBC. Most importantly they trusted their banker, like they would trust their doctor.

 

Moneylife has reviewed  Ms Krishnamoorthi’s mutual fund transactions and found massive malpractices by HSBC

 

  • Her mutual fund portfolio was continuously churned resulting in high transaction costs in the form of entry load and exit loads. While several transactions led to huge losses for her, HSBC was the gainer of commissions.
     
  • Out of the 75 transactions made, nearly 60% of the transactions were in equity schemes kept for a period less than one year. Here investments were made in schemes like HSBC India Opportunity Fund and HSBC Mid-cap Equity Fund, both of which have been underperformers. Apart from these, majority of the investments were made in balanced schemes of HDFC Mutual Fund, ICICI Mutual Fund and Sundaram Mutual Fund.
     
  • The worst part of the transactions came around the market peak in November 2007 where nearly Rs3 crore was invested across five schemes on a single day which included over Rs1.67 crore invested in three sector schemes—ICICI Prudential Infrastructure Fund, Sundaram CAPEX Opportunities and Reliance Diversified Power Sector. Nearly Rs50 lakh was invested in Sundaram CAPEX Opportunities which has a current corpus Rs200 crore.
     
  • The investments from all sector schemes were withdrawn between June and August 2010 at a loss of nearly Rs40 lakh, almost half her initial investment. The schemes from ICICI Mutual Fund and Sundaram Mutual Fund went down by nearly 50%. The other schemes were also withdrawn at a value 15%-30% lower resulting in a total loss of Rs86 lakh. These schemes included JP Morgan India Equity Fund (a poorly-performing scheme) and IDFC Premier Equity Fund.
     
  • Surprisingly, in the whole portfolio there was not a single debt scheme and just one liquid scheme— HSBC Cash Fund. Ironically, commissions paid on debt schemes and liquid schemes are much lower.
     
  • Ms Krishnamoorthi says an entry load amounting to over Rs29 lakh was deducted from her investments. If the bank had opted to only invest her amount of Rs3.60 crore in performing equity schemes for the long term, without any further buying or selling, the entry load of 2% at that time would have worked out to just Rs7.20 lakh.

    Similarly, when the NRI investor examined his portfolio managed by HSBC, it was found that there was continuous buying and selling without any cogent reason. The value of the portfolio was unnecessarily eroded because of payment of exit load.

 

According to data from mutual fund industry association AMFI, for FY11 and FY12 HSBC earned the highest mutual fund commissions amongst all distributors. In FY11 it earned a commission of Rs118.97 crore and in FY12 it earned a commission of Rs153.98 crore even when the industry was down in the dumps. Another bank just below HSBC in terms of commissions earned is, not surprisingly, HDFC Bank.

 

The modus operandi for HSBC in both the cases has been a continuous churning by the “portfolio management service” by taking a power of attorney (POA) and used pre-signed blank letter of intents (LOIs) to execute the transactions on behalf of the clients. The London-based NRI mentions that he was asked to sign blank LOIs. On asking the bank to provide copies of the LOIs, he found that certain forms were not signed by him due to a mis-match in signature. He has even provided forensic evidence to prove that he has not signed on certain documents.

 

In Ms Krishnamoorthi’s case, she says “LOI’s provided by the bank to me clearly show that investments were made without my corresponding signature or mandate to every debit made by them in my account as is the lawful requirement. In fact inspite of my repeated requests they have refused to provide me copies of LOI’s between 2008 and 2010 – the period in which I incurred maximum loses and my portfolio repeatedly reshuffled without my knowledge or consent”.

 

Ms Krishnamoorthi in her letter to the banking ombudsman mentions that on seeing around Rs3.60 crore being deposited to her account (as a part of a divorce settlement), “HSBC bank approached me with a proposal that they could handle my investments. Since I hold such large balances, for the same they should be appointed as portfolio managers to handle my investments. They even showed me a very rosy picture of investments which they had made for others and assured me that they would get better returns for me.” The officers of HSBC Bank also informed her that “portfolio management is one of the prime businesses of HSBC Bank other than banking” and assured her “a minimum of 24% p.a. return” on her investments. However, following her complaint to the to officials of the bank she said that “HSBC Bank now claims that they have not acted as portfolio managers but merely advised me on the management of my wealth.”

 

Ms Krishnmoorthi refutes this saying, “This is a false claim as they have clearly performed the duties of portfolio managers as stated by law and as per the power of attorney obtained from me in 2004.” Apart from mis-handling of her investment portfolio, the bank mis-sold her insurance products promising 24% returns, insisting her on taking a loan instead of withdrawing funds without even disclosing that she was entitled for a smart loan.

 

As we have mentioned several times in the past, scamming bankers (now being called banksters) look to earn for themselves the highest commission no matter that the investment would terrible for the clients. Recently, we reported on the how senior citizen Maganlal Sharma was duped by his bank into purchasing a mutual fund scheme.  (Read: Mangelal Sharma gets his Rs7 lakh back—another Moneylife victory) Thanks to Moneylife’s efforts, he got back his money; however, others are not so fortunate. Moneylife Foundation recently wrote to the Reserve Bank of India (RBI) on the mis-selling by banks. (Read: Moneylife Foundation memorandum to RBI on mis-selling by banks) If you have been a victim of mis-selling by banks do mail your complaints to us at [email protected]

 

But another striking irregularity has emerged as per the findings as brought to our notice by the other investor is that HSBC Bank was merely acting as portfolio managers and in fact may not have any regulatory authorisation. Not surprisingly, the illegal transactions have earned the bank huge commissions. When the London-based HNI sought legal advice into to this matter with two separate law firms, they mentioned that HSBC Bank has not complied with the portfolio management service (PMS) regulations as laid down by the Securities and Exchange Board of India (SEBI). In order to manage funds or even advice clients the bank was required to obtain a portfolio manager’s license from SEBI.

 

Even though HSBC has taken a POA to indemnify itself, one of the law firms mention that the bank is still not authorised to provide such portfolio management or advisory service. Along with this, HSBC Bank has not complied with other regulations according to the law firm.

Comments
Michael Mason-Mahon
1 decade ago
To Mr Raghuram Rajan the new Governor of the Reserve Bank of India and USA District Court Judge John Gleeson

Mr Raghuram Rajan has the perfect academic pedigree and, as a financial economist, strong market credentials

Before reading anything about HSBC, people should go to youtube: 1) How HSBC Chairman Mr Flint lied to shareholders. 2) Protest against HSBC in Mumbai. 3) Help Stop Bankers Cheating

Will Mr Raghuram Rajan the new Governor of the Reserve Bank of India, summon Mr Stuart Milne the CEO of The Hongkong and Shanghai Banking Corporation Limited in India to explain the illegal and criminal behaviour being committed by The Hongkong and Shanghai Banking Corporation Limited in India .

Will Mr Raghuram Rajan take note of just how much the behaviour of The Hongkong and Shanghai Banking Corporation Limited in India is hurting the Indian Economy.

Mr Raghuram Rajan many people in India have been abused by the HSBC, I do ask on their behalf that as the Governor of the RBI will you please start a full investigation into the The Hongkong and Shanghai Banking Corporation Limited in India.

Is Lies the new truth at HSBC? Is Cowardice the new Courageous Integrity at HSBC?

Google: How much longer can the FM, RBI ignore HSBC in India? - Moneylife

All one can say is this HSBC at its best?

Be very careful when doing business with HSBC. Has the HSBC Group ruined many innocent people's lives with their illegal and criminal behaviour?

One has to remember that the HSBC Group committed illegal and criminal behaviour for over ten years, has one Board Directors been fired or held legally responsible for the illegal and criminal behaviour by HSBC?. Why?

I highly recommend if you honestly believe that HSBC Group have committed illegal and/or criminal behaviour against you, report this to the Mr Raghuram Rajan the new Governor of the Reserve Bank of India, also USA District Court Judge John Gleeson.

HSBC has signed a Deferred Prosecution Agreement if HSBC Group is still committing illegal and criminal behaviour, would they be breaking the Deferred Prosecution Agreement?

I do think that USA District Court Judge John Gleeson would be very interested to hear from anyone who has evidence concerning HSBC Group committing illegal and criminal behaviour

Did Mr Flint and Mr Gulliver Chairman and CEO state they did not know what was going on? If the world is to believe them, then why did they not know?

Have they and others Directors of HSBC Holdings Plc been negligent in their duty to the shareholders and have they also failed the regulators around the world?

Michael Mason-Mahon

Mobile: 0044 7834763544
Mobile: 0044 7448770801
E-mail: [email protected]

"First they ignore you, then they ridicule you, then they fight you, and then you win".


Suiketu Shah
1 decade ago
I have noticed a few comments stating SK was "greedy".Utter nonsense.When you are promised 24% /yr by wealth management experts like brands of HSBC/HDFC and donot have thorough knowledge of Indian equities,you are more than likely to go ahead.

To call SK greedy reflects the hollowness of such people who ,in all probabilities themselves are mutual fund advisors or wealth management advisors facing a rough time as people are more inclined towards FD's inview of mass scale cheating and fraud by them.
SuchindranathAiyerS
1 decade ago
I did get rooked (misled) by an HSBC relationship Manager into investing in HSBC-Canara Bank Life Insurance and Reliance "Portfolio Management Services" and much earlier in hedge funds. All of which I had to retract from at considerable loss as a wiser man. Their current procedure certainly obviates any such complaint and any form signed by you has to be executed on the same day and phone calls are made by a second (authenticating officer) to verify the transaction. However, "Caveat Emptor" is strongly advised in all finances in India as there is no protection against being conned (i.e. misled). Particularly by politically driven financial institutions like Chit Funds, UTI, LIC etc. etc.
Michael Mason-Mahon
Replied to SuchindranathAiyerS comment 1 decade ago
Dear Suchin
Would you like to contact me directly, to discuss what HSBC has done to you.

Kind regards
Michael Mason-Mahon
Mobile: 0044 7834763544
Mobile: 0044 7448770801
E-mail: [email protected]

"First they ignore you, then they ridicule you, then they fight you, and then you win."
Michael Mason-Mahon
1 decade ago
Before reading anything about HSBC, people should go to youtube: 1) How HSBC Chairman Mr Flint lied to shareholders. 2) Protest against HSBC in Mumbai. 3) Help Stop Bankers Cheating


Senate investigation concluded that HSBC provided a, quote, "gateway for terrorists to gain access to U.S. dollars and the U.S. financial system."
Senator Levin said HSBC had been ‘pervasively polluted for some time’.

Can the world forget the last ten years of HSBC Group helping Drug Cartels, Iran, Libya, Cuba and ignoring USA Trading with the Enemy Acts, even after being warned it still continued, who was the Finance Director? Mr FLINT

What HSBC has now admitted to is, more or less, the worst behavior that a bank can possibly be guilty of.

These crimes were so obvious that apparently the cartels in Mexico specifically designed boxes to put cash in so that they would fit through the windows of HSBC teller windows.

People judge a company for what it has done in the past , what HSBC has done in the last ten years has it been criminal behaviour?

Mr Flint you have not met the expectations of the people in India or the Regulators around the world.

HSBC did meet the expectation of overseas Banks with links to terrorist financing, HSBC did meet the expectation for Drug Cartel's wanting to launder drug money.and as far as contributing to the fulfilment of their aspirations and ambitions you did fulfil their ambitions of laundering money. Which HSBC did that for many years.
HSBC takes compliance with the law, wherever it operates, very seriously.Is this just a bad joke by HSBC?

In India HSBC has killed the aspirations and ambitions of so many people by falsely registering them with CIBIL, asking people to sign blank LOI's, demanding money illegally.

Can Society or the Regulators forget or ignore the innocent Victims of HSBC in India

"First they ignore you, then they ridicule you, then they fight you, and then you win."
nagesh kini
Replied to Michael Mason-Mahon comment 1 decade ago
Well said Micheal!
If BCCI can also mean "Bank for Crooks and Criminal International" surely there ought to be equally apt acronym for HSBC with all its transgressions and misdemenours.
There is "The polluter pays" for any pollution related degradation
The US Senator designated "pervasively polluted" bank should be more heavily penalized in all the countries that it has been polluting so brazenly!
Michael Mason-Mahon
Replied to nagesh kini comment 1 decade ago
Hi Nagesh

H elp S top B ankers C heating
nagesh kini
Replied to Michael Mason-Mahon comment 1 decade ago
Great Micheal.
Absolutely apt acronym!
Correctly sums up HSBC behaviour in full measure.
nagesh kini
Replied to Michael Mason-Mahon comment 1 decade ago
Great Micheal.
Absolutely apt acronym!
Correctly sums up HSBC behaviour in full measure.
Dayananda Kamath k
Replied to Michael Mason-Mahon comment 1 decade ago
H ighly S uspecious B eing C heated.
Michael Mason-Mahon
Replied to Dayananda Kamath k comment 1 decade ago
What HSBC has now admitted to is, more or less, the worst behavior that a bank can possibly be guilty of.

These crimes were so obvious that apparently the cartels in Mexico specifically designed boxes to put cash in so that they would fit through the windows of HSBC teller windows.

H eroin S mack B low C ocaine
nagesh kini
Replied to Dayananda Kamath k comment 1 decade ago
Thanks Micheal & Dayananda. they are indeed extremely apt!
Both ended with "Cheating" that is exactly what the HSBC did!
Cooper
1 decade ago
I agree. HSBC has been caught lying and with its hands in the till. Does the bank have no shame? What are the police and regulators doing as the common man is looted in India by these rich foreign banks - who have been granted these licenses to operate ( read as steal ) in India.

The you tube link is an eye opener.
P M Ravindran
1 decade ago
The biggest criminals in India re in government. So we cannot expect anything better. In fact my serious opinion after adequate analysis is that our governments are entities that do nothing that they are supposed to be doing and doing everything that they are not supposed to be doing.
nagesh kini
1 decade ago
Putting across on http/YouTube the shareholders' query and the Chairman's statement makes an extremely effective impression and this needs to be replicated for all AGM. Cos. dilly dally when asked for transcripts of AGM minutes which are invariably doctored.CDs of entire AGM proceedings of listed companies should be made available to shareholders on payment.
nagesh kini
1 decade ago
Putting across on http/YouTube the shareholders' query and the Chairman's statement makes an extremely effective impression and this needs to be replicated for all AGM. Cos. dilly dally when asked for transcripts of AGM minutes which are invariably doctored.CDs of entire AGM proceedings of listed companies should be made available to shareholders on payment.
Michael Mason-Mahon
1 decade ago
An open letter to the Indian Minister of Finance

Dear Mr P Chidambaram

It is with serious concerns and great disappointment that I am writing this letter in Moneylife.

I like many people not only in India, also around the world wait for the RBI and the Regulators to investigate The Hongkong and Shanghai Banking Corporation Limited in India and the way it has been conducting business in India.

For three years I have help many people in India and Indian's around the world to get justice and to stop The Hongkong and Shanghai Banking Corporation Limited in India from committing illegal behaviour against them.

May I make a personal plea to you as the Finance Minister; will you please let the Financial Intelligence Unit start an investigation into The Hongkong and Shanghai Banking Corporation Limited in India?

1) The sale of their written off credit card and personal loan debt in June 2011 to JM Financial and the data base containing over 2 Lak names.

2) How many Indian's were falsely registered owing HSBC MONEY?

3) How many Indian's have HSBC falsely registered with CIBIL?

4) How many Indian's have HSBC falsely registered having a credit card?

5) Have HSBC been registering illegal penalty charges against credit card holders in India?

6) Has HSBC written off these illegal debts against their tax liabilities?

7) If HSBC has written off these illegal debts against their tax liability's, would this not be tax fraud and fraud against the Government of India?

8) Has HSBC been illegally forcing people to pay money which HSBC was not legally entitled to?

9) Has HSBC been getting their customer to sign blank LOI's, which is illegal?

10) Mr Flint Chairman of the HSBC Group states: http://www.youtube.com/watch?v=Jl5O-2mJD... and the evidence http://youtu.be/50lKgAn_ZKk

Please remember to what the Senate investigation concluded that HSBC provided a, quote, "gateway for terrorists to gain access to U.S. dollars and the U.S. financial system."

Senator Levin said HSBC had been ‘pervasively polluted for some time’.

Mr Chidambaram how much longer will the people in India and Indian's around the world have to suffer before the Indian Government takes action to stop the illegal behaviour of The Hongkong and Shanghai Banking Corporation Limited in India?

Yours sincerely

Michael Mason-Mahon
Mobile: 0044 7834763544
Mobile: 0044 7448770801
E-mail: [email protected]

"First they ignore you, then they ridicule you, then they fight you, and then you win."
Vikas Gupta
1 decade ago
All private banks like Axis, Indusind, HDFC, icici etc. are misselling 3rd Party products as confirmed recently by sting operation of CobraPost. In fact, among all of these Indusind Bank is totally unethical in the 3rd Party Products market.These banks should be heavily punished & barred from selling any 3rd party products in the future.
Michael Mason-Mahon
1 decade ago
Will India unite and make the RBI and the Regulators start a criminal investigation into The Hongkong and Shanghai Banking Corporation Limited in India?

Before reading anything about HSBC, people should go to youtube: 1) How HSBC Chairman Mr Flint lied to shareholders.

About blank HSBC asking people to sign blank LOI's

A DAS
1 decade ago
This keeps getting murkier. I guess Idia is happy hunting grounds for the ilk of HSBC (as also the Private banks). The inherent nature is to operate out of trust. And when a professional comes up one is not scrutinising them for foul play. The ambience and decor of the banks help. Thus they are easy flock to the slaughter house.
One does't always know, unless on hindsight, and by that time it is too costly and too late. I hope enough people take cognisance of this article.
Siddharth Biswal
1 decade ago
Why blame only HSBC are rest indian pvt banks holy cows ?One of my friend is contemplating leaving HDFC bank because his designation is deputy manager but he is forced to work like an insurance agent.Morever if a reputed bank can do this what's the surety that a financial planner wont do that?Consumer has to beware & educate oneself.Invest in knowledge first before investing in a product.It is a task which SEBI & RBI are clearly failing with no of fraud cases like collective investment schemes(CIS) are increasing.How many people know difference between CIS & chit funds?Risk in former is much more than later.Watch dogs sitting in their glass houses wont solve the problem.They have to sweat it out if indeed they want to cleanse the system.Mr Chakrabarthy said no instance of money laundering was found as if he actual transaction mattered a lot.I think we should have funded Cobrapost to do a money laundering to satisfy RBI's itch.This reactive attitude instead of being pro-active by watch dogs is clearly hampering our country.It seems our watch dogs are afraid of barking.
Suiketu Shah
Replied to Siddharth Biswal comment 1 decade ago
Mr Biswal,in this bank desginations is all "showbazi"(as per the words of a senior hdfc bank person himsefl) and actually they are all salesmen.How do you treat salesmen at a grocery-treat hdfc bank employees in the same way irrespective of their "showbazi"designation.
Nihar Mody
1 decade ago
This reminds me of similar proposals put to me by various other bankers. All of them rejected by me. Three pricipals:

1. Buyers Beware. - Seller is in the market to make money.

2. In God we trust, Rest all pay cash. - Why trust some unknown entity blindly.

3. Fool and his money part easily. - Greed is main culprit.
nagesh kini
1 decade ago
It is rather unfortunate that banks like HSBC think that they can get away by cheating only gullible greedy citizens.
The Hindu Law of Karma seems to have gotten HSBC - one pays for the sins committed in this this life itself.
The Times of India 24/4 carries a front report "In elaborate con, city firm dupes HSBC of Rs.330cr".
The Brit bank fell for the smooth talk of sharp conmen that they have companies in Dubai and Mauritius, wanted the bank fumds to acquire technical equipment and software to upgrade their library in London from 2D to 3D format.
Being British, the HSBC apparently fell flat by the conmen dropping technical jargon "upgrading entire London library format" and the holy cow "BBC". Apparently they got so carried away that they failed to ascertain the veracity of the claims and go behind the documents that turned out to be all forged and fakes.
QED The so-called 'international bankers' also have feet of clay - their credit appraisal processes and are more hazy and not infalliable!
Array
Free Helpline
Legal Credit
Feedback