In your interest.
Online Personal Finance Magazine
No beating about the bush.
On World Consumer Rights Day, customers, who have been cheated by banks and their relationship managers and are willing to wage war for justice have something to cheer. Well known Singer-actor-author Suchitra Krishnamoorthi has reason to celebrate Friday after the Hong Kong and Shanghai Banking Corporation (HSBC) suddenly called her for a discussion and settled her case in less than 24 hours and handed over a cheque. Moneylife Foundation, which has relentlessly pursued this case with the Reserve Bank of India (RBI) knows that HSBC officials were summoned by the banking regulator, which had also made its displeasure clear. This was in addition to the show cause notice served to HSBC last year by the Securities & Exchange Board of India (SEBI), which covered the mis-selling and hefty churning of Ms Krishnamoorthi's portfolio causing a loss of just under Rs30 lakhs in fees and loads alone.
We understand that the amount that HSBC paid out may cover Ms Krishnamoorthi's entire loss, but thanks to the terms of the settlement agreement, we will never know whether it included interest and compensation for the harassment and mental stress over the past five years, when she found that the so-called expert wealth managers from the bank had misguided her on almost every investment -- a dubious smart loan for her home, unit linked insurance products and churning of mutual funds. Ms Krishnamoorthi had availed of help from Disha Financial Counselling, where R Gopalakrishnan had helped her crystallise her loss. This was then presented to the RBI as well. Moneylife had also helped crystallise the exact loss caused by the churning of her mutual fund portfolio.
Here is a narration of how the story unfolded over the past two years:
Moneylife published an expose' in April 2012 on how HSBC looted Ms Krishnamoorthi for over five years by promising an extravagant assured return of 24% from mutual funds as well as insurance.
Last year in November, market regulator SEBI sent a strongly-worded notice to HSBC asking the lender to explain why its acts in handling the portfolio of Ms Krishnamoorthi were not in violation of its regulations governing fraudulent and unfair trade practices and violation of the code of conduct governing mutual fund distributors.
Whenever she complained about losses in her account, the standard reply from HSBC Bank was that the relationship manager has been fired and that the bank will make up for the losses with judicious investments. Needless to say, the losses were never made good.
The modus operandi for HSBC in this case had been a combination of toxic churning of the portfolio management system (2% entry load on every purchase made by it on behalf of client), insurance products promising 24% returns, insisting on her taking a loan instead of withdrawing funds without even disclosing that the client was entitled for a smart loan.
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% pa return” on her investments. However, following her complaint to the officials of the bank, she had told Moneylife that HSBC Bank was claiming that they had not acted as portfolio managers but merely advised on the management of her wealth.
This also is a case of systematic looting and exploitation of emotionally vulnerable who had received Rs3.6 crore as part of a settlement in September 2006. The money was supposed to be the means of livelihood for herself and for her daughter. The bank used confidential information about the hefty deposit in her savings account and began to market its toxic services to her. Since bankers are seen as trustworthy, she believed that her relationship manager was advising her correctly.
The end result after five years was Rs83 lakh—direct loss from investment, about Rs28 lakh in commission to HSBC, Rs8 lakh (50% of investment) lost from an insurance policy, Rs10 lakh (again, 50% of investment) valuation decline in insurance policy still in force, Rs4.5 lakh tax paid on redemption of short-term mutual funds (including Rs1.85 lakh penalty to the Income Tax department due to non-disclosure of gain by HSBC to the client) and Rs58 lakh interest on home loan earned by the bank. Of this, only the interest component on the loans seems to have been seriously disputed by the bank.
Moneylife 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 loads 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.
When Ms Krishnamoorthi wished to surrender her insurance policies, HSBC refused to act for her by contending that they no longer had any tie-up with Tata AIG and that it was not their business to get client’s money back that they had recommended in the first place.
“It took my chartered accountant six months to authenticate the figures of losses—as not only was the HSBC team adept at covering its paper trail. They also very conveniently refused/ evaded furnishing me the documents to which I am legally entitled for over a year—giving me one silly excuse after another like mismatch of signature/ officers being on leave,” she told Moneylife.
Unfortunately, in several such cases, banks tend to get away scot-free because the consumer is conned into signing a number of documents based on misplaced trust in their bankers. For instance when Ms Krishnamoorthi took her issue up with the Banking Ombudsman, the bank replied stating that she had signed on all the letter of instructions (LoIs) to carry out the transactions in her account. The manner in which bank officials discharge their fiduciary duties was not even taken into account.
On 18 April 2013, Moneylife Foundation had presented a memorandum to RBI Governor (http://foundation.moneylife.in/?page_id=2000 ) on unchecked mis-selling by bank relationship managers. It says, “Banks’ relationship managers have been particularly brazen in recommending financial products to their customers while completely disregarding their financial situation. It is commonplace to hear of a senior citizen being conned into investing in a mutual fund, unit-linked insurance plan or a hybrid-derivative product on the promise of higher returns. In many cases, private bank executives go over to their homes and persuade them to break secure fixed deposits and invest the money in unit linked insurance products (ULIPs) with the false assurance that these are as safe as fixed deposits and offer a higher return and security.”
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With smartphones set to function as a remote control for many aspects of our lives, consumer groups believe that big mobile companies should be held to account for unfair, substandard services.
Consumers International (CI), a global coalition of 250 member organisations has declared that “Fix our phone rights!” will be the theme for World Consumer Rights Day, which is observed on 15th March. CI, which has members in 120 countries believes, “with smartphones set to function as a remote control for more and more aspects of our lives, consumer groups believe now is the time to ensure big mobile companies are held to account for unfair, substandard services”. Instead, it says, “mobile rip-offs are commonplace – from holidaymakers being stung by four figure roaming bills abroad, to customers tricked into paying to receive text messages.”
CI has drawn up a consumer agenda for fair mobile services, which outlines what the consumer rights movement wants to see changed. See www.consumersinternational.org/wcrd2014. This includes demands that telecom companies:
• provide consumers with access to an affordable, reliable service
• provide consumers with fair contracts explained in clear, complete and accessible language
• provide consumers with fair and transparent billing
• provide consumers with security and power over their own information, and
• listen and respond to consumer complaints.
CI intends to deliver this message to the International Telecommunications Union (ITU) - the UN body responsible for setting standards in the industry - ahead of the ITU World Telecommunications Development Conference in early April.
In the run up to 15 March, which is World Consumer Rights Day, consumer groups will be making one big call on mobile phone service providers to demand better services for the 7 billion mobile users across the globe.
Although CI has several member consumer organisations in India, it is unclear at this stage whether any of them are participating in this global effort to pressure telecom companies to treat customers fairly.
The Consumer Education & Research Centre (CERC) , Ahmedabad has organised a four- day programme to celebrate World Consumer Rights Day, starting 15th March when it will have a discussion with two telecom experts on ‘Phone Users Rights and Redressal Mechanism’ and will also have a discussion on ‘Consumer Redressal Mechanism’.
Citrus Check Inns, the new avatar of Royal Twinkle Star Club, is selling its holiday membership as an investment plan to gullible investors. Is SEBI aware about it?
Citrus Check Inns Ltd is the new avatar of Royal Twinkle Star Club (RTSC) that was infamous for selling holiday packages to gullible people on monthly instalment basis and promising high returns on their investment. Several agents of both these entities are found hard selling these as investment plans just to earn more commission and also recruiting new agents for marketing it.
One investor, Sampath P told Moneylife that, his parents invested in RTSC investment plan. Not being very financially literate they misunderstood the holiday package membership as a recurring deposit plan. They paid Rs500 every month to RTSC in the hope of getting good returns on their investment! On maturity when Sampath and his parents went to collect the amount, after standing in long queue with other investors waiting for their money, RTSC simply refused to pay up. This happened on several occasion, finally the company agreed to pay the money he invested along with some interest. He said there are many other investors who are still asking for their money.
Few agents of these companies operate through their own website and sell membership plans. Their sites include presentations and membership plans of both the companies as well as how one can earn income through its plans. Mrs Harapriya, an agent, in her blog titled: Big-Dad’s-Money, posted about how one can become millionaire by being part of its network and investing in its ‘investment plans’ and she typically pitches it in the money-circulation scheme way.
“In this world with high rate of inflation everybody wants to become rich overnight. Sometimes question comes in mind, is this possible? I know for getting prosperity in life, hard work is a must, without hard work life becomes a bed of thorns.
It is in your hand to make the dream comes true and to walk on the red carpet with roses under your feet. You will earn crores of rupees, dollar, pound sterling even euro. It is all in your hand. Join citrus check-inns in April by depositing an amount of Rs15,000 or more amount in different holiday plans of the company.”
There are many complaints on forums like complaintboard.in regarding ‘investment plans’ offered by Royal Twinkle Star Club. One such victim, Sajid Memon, warns people about the company. He wrote; “Royal Twinkle Star Club is misleading the common public by false selling. The company is really a fake. These people take common people hard earn money, promise 13%, 14% or more interest, and then come up with many excuses and finally disappear. It happened with me. They convinced me, though my family said a no and made me invest.”
Both RTSC and Citrus Check Inns are owned by Mumbai-based Mirah group, which runs hotels under the name Citrus and retail food chain restaurants such as Rajdhani, Mad Over Donuts and Falafels. Citrus Check Inns website claims that it gives freedom to its members to travel over 30 Indian and 3,000 overseas destinations.
Earlier in February 2012, the MCA has directed a probe into books and records of Royal Twinkle Star Club, following allegations of illegal deposit collection from several investors. “RTSC offered customers a variety of Investment plans for holidays, Investors have raised concerns as the holiday plans have an option for redemption of the subscription amount. Registrar of Companies, (Roc)Mumbai received complaints from several investors saying that they were approached by agents of RTSC, who guaranteed returns of 1.5 times in 4 years, 1.7 times the investment in 5 years, double in 6.5 years and 3 times in 9 years,” says a report from Business Standard.
Omprakash Gupta, chairman and managing director of Mirah group, told the newspaper that there was no probe by MCA into the company books and accounts. Goenka said, “RTSC was marketing holiday plans by subscription to the membership offers, but not collecting deposits. The points mentioned in offer documents are reward points as offered by any credit card company or airline company as bonus reward points.”
RTSC in its new avatar as Citrus Check Inns also offers membership plans with different names and features, which are based on the points system. On paying certain amount, the company provide points to investors, which they can redeem at various Citrus hotels. Each point is equivalent of Rs100 and people who do not want to avail holiday plan can ‘rent out’ their holidays to someone else after fulfilling all terms and conditions.
The company displays the holiday membership plan in equated monthly instalment (EMI) options for future holidays along with reward point scheme. However, majority of the company agents mis-sell this membership as investment and also promote it as part time and full time earning opportunity. This includes selling of membership plans and adding more people into their network like multi-level marketing (MLM) schemes and earning commissions.
One reader told Moneylife, “Citrus Check Inns is selling investment schemes and collecting money from people with promise of returns more than bank and post office, in the garb of timeshare. They are targeting low and middle income people, who do not have much knowledge of an investment product.”
One agent of the company wrote on complaintboard.in. It says, "Citrus Check Inns Ltd Refundable membership plan as well as Money Investment plan, because money is collected and pay back after different period. All plans are suitable for every customer plan period is; 5/6/7/8 and 9. It means we called Recurring Deposit / Fixed Deposit/ pension plan and money back term."
This comment clearly is intended on selling ‘investment plan’ and not any membership plan of holiday package.
What both Royal Twinkle Star Club and Citrus Check Inns are doing, under the pretext of selling membership plan, is nothing but pure collective investment scheme (CIS), as per Securities and Exchange Board of India (SEBI) definition.
The SEBI Act, 1992 gives the market regulator power to regulate the working of schemes which are in effect CIS and have the following characteristics:
Money collecting activities of both RTSC and Citrus Check Inns, carry the features of a CIS, specified under Section 11AA of the SEBI Act read with Regulation 3 of the SEBI (CIS) Regulations.
Earlier, market regulator SEBI had barred several companies like Osian’s-Connoisseurs of Art Pvt Ltd , Sun-Plant Agro , Kolkata-based Rose Valley group , and Maitreya Plotters and Structures Pvt Ltd from collecting money from public under the pretext of offering ‘investment plan’ and ‘huge returns’.
The Rose Valley group was found running a holiday membership plan similar to what is being offered by RTSC and Citrus Check Inn.
Our email sent to SEBI, about the money collection scheme of RTSC and Citrus Check Inn, remained unanswered till writing the story.