The wealth management arm of Kotak Mahindra Bank misled a customer into investing in its India Growth Fund at a steep premium, based on bogus claims. Kotak officials remain impassive even as the investor struggles to find buyers
It seems that customers everywhere are paying a hefty price for their blind trust in companies with strong brand images. Citibank claims it had no inkling about the Rs400-crore fraud played out by one of its employees on unsuspecting clients. Now, a customer of Kotak Mahindra Bank has learnt a harsh lesson after reposing unquestioning faith in the brand he trusted so much.
In a shocking incident, a high net-worth client of Kotak Mahindra Bank was hustled into buying a dud product for a whopping sum of Rs2.27 crore, with the bank pocketing a cool profit of Rs1 crore in the process. The wealth management arm of the bank allegedly misled the investor into putting the money in its India Growth Fund, based on bogus claims regarding its worth and taking undue advantage of the brand name to influence the buyer. The investor's repeated pleas to rectify the damage have fallen on deaf ears as Kotak officials refuse to budge.
The investor, Rajan Manchanda, had in June 2007, invested large amounts in two of Kotak's funds-Biotech fund and Realty fund. Mr Manchanda was given a detailed presentation for both these funds and he gave his acceptance to make the investments. Mr Manchanda also assisted Kotak in getting equivalent investments from his cousin for these two funds. Kotak zeroed in on him again to sell him another product-India Growth Fund.
Mr Manchanda was allegedly misled into investing in the fund by making bogus claims about its worth. Claiming that the fund was being sold to him by another investor in a distress sale at an attractive discount, the Kotak official made a strong pitch in favour of the fund. Although the investor had some reservations, he was persuaded into buying it, saying there was a rush of investors wanting the product while it was available at a discount. Kotak collected Rs2.27 crore from Mr Manchanda, who was under the impression that he was getting the fund at a discount to its value of Rs2.5 crore.
"I told him I had already made huge commitments in the two funds and would like to avoid further commitment. He insisted that I trust him and would not regret as three to four companies were going public in the next 12 months and that would more than take care of the amounts payable for the two other funds. He wanted a commitment immediately or else I would lose out. Upon his assurances and insistence I agreed to invest," said Mr Manchanda, describing his situation.
Curiously, Mr Manchanda was asked to make out the cheque in favour of Kotak Mahindra Prime Ltd, the car financing division of Kotak, and not the seller of the fund. He was told that this was due to certain 'technicalities' involved in the transfer of the fund and that Kotak was not benefiting in any way but only facilitating the transfer. He was repeatedly told that the premium on the distress sale had been paid to the seller of the fund. Surprisingly, the investor was not issued any agreement letter, despite assurances to that effect. Neither was he given any valuation report. Mr Manchanda lost trust and requested the officials to sell all the three funds. Kotak officials, however, kept on assuring him that the funds would be sold and that he should bear with them as the markets were bad.
Sensing foul play, Mr Manchanda approached the Chennai-based seller of the fund in October 2009 and found that he had been taken for a ride all along. Apparently, the seller was paid only his contribution of Rs1.25 crore, minus Rs6 lakh collected by Kotak. Mr Manchanda realised that Kotak had betrayed the trust he had reposed in them and that Kotak had fraudulently dumped onto him a worthless investment at a steep premium. It is obvious that someone at Kotak has made off with a cool Rs1 crore in the process.
Mr Manchanda also tells us that the Realty fund was sold by Kotak on his behalf at Rs1.01 crore, against his investment of Rs1.47 crore. He had to bear a loss of Rs46 lakh on the investment. Apparently, the fund was valued at 1.2 times the investment but sold at a 35% discount to the actual investment. The Biotech fund, supposedly valued at twice the investment, cannot find a buyer, claim Kotak officials. The India Growth Fund is also failing to attract any buyers.
The investor now finds himself in a deep hole as his repeated attempts to get the attention of the top authorities at Kotak have taken him nowhere. Shockingly, every time he finds himself being redirected to the very people who sold him the fund in the first place!
Only recently did the investor get a reply from the wealth management arm on behalf of Uday Kotak, stating that he was not duped in any way. Even Moneylife's attempts to get answers have not yielded any response yet.
The investor has also lodged a complaint with the Securities and Exchange Board of India (SEBI), but has not made any progress here too.
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In posh South Mumbai one MBA was working for a private banks wealth management team.She has cheated,fooled and defrauded almost everyone she knows-relatives,friends,neighbours,etc almost everyone with mfunds in 2007 at sky high price--all in her quest to make commission for her bank and herself.
The result-she was thrown out of her bank in 2008 and nowadays wherever she goes out -be a restuarant,club,outing etc she checks who is in that restuarant(even before having a seat) and is someone familar is there,she flees that place immediately!!!!!!
The day is not far away where most wealth management companies will be considered socially as outcasts as criminals.Keep running for yr lives fraud wealth managers!!
NOW KNOWING THAT I HAVE BEEN DUPED OF MY MONEY CAUSE OF CRIME COMMITED BY KOTAK SECURITY ANALYST I HAD PUT UP A COMPLAINT TO MR UDAY MITTAL ..BUT I WAS TOLD THAT HE DOES NOT LOOK INTO PERSONNEL ISSUES . VP OK KOTAK TOLD ME THAT HE CAN ONLY BE SORRY FOR THE MONEY I HAVE LOST BUT HE CANT REFUND MONEY CAUSE OF COMPANY POLICY.
What I have learnt is that for many days your complain was not heard and dealt professionaly. Your emails were also not acknowledged.
But finally one day you got your money how. How ? What was the process followed by you can you please tell. This will be of great help to others.
Mr Manchanda, I am also very curious to know did they force-sell you scheme and pushed heavily to invest just like street side sales men pushing for credit cards ?
When they told that they want the chq to credited to so an so name not even once you hesitated or refused for the same ?
Finally,didn't you confirmed the overall investment scheme from seniors of the bank.
Please do make an effort to tell how did you finally recieved the moeny.
Please also reveal your intention about asking all these questions now. What is it that you are trying to establish?
The issue was resolved in Jan 2011,and now is nearly two years old.I can only say Money was recovered with the untiring efforts of Ms.Sucheta Dalal. All other actions with various departments did not help.Keep reading Moneylife and attend the seminars to keep yourself updated.No point in going into my past history of misinvestments.
Although this issue is old I came accross this issue recently.
My intention:we learn from other's sucess and failure and accordinly was interested and somewhat curious in knowing how the investor got back his money considering the hardships he underwent.For example. many emails sent by him were not even being replied.
@Rajan,
We learn from history and for this reason I was trying to understand ur case.
Now, I have got answers to my questions, thank you for replying.
Although many of us are not proactive enough to bother about making our appreciation known, please do remember that we do appreciate the effort.
P.S. I have known about and read Moneylife articles for almost 2 years and even attended one of their seminars before registering today to write a comment for the first time.
regards,
vijay dixit
Did they pay you interest for your 3 year fight?
Also, are you saying that you got this help for just the cost of a Moneylife Subscription? I assume you are a subscriber?
anshuman
Expecting Interest ? I would get an entry in Guinness book of world records. Gentleman we are not living in USA. We are governed by local laws, processes and procedures.
I was " NOT " REPEAT " NOT " a subscriber of Moneylife, although occasionally I did pick up a copy at the book stall. I am today a subscriber. I got this help with just one phone call to Ms.Sucheta Dalal. So getting help at the cost of a Moneylife subscription does not arise.
ONE DOOR CLOSES - GOD OPENS ANOTHER--
INDEED - MONEY LIFE FOR INVESTOR PROTECTION !!!!!
2011
" The Pen Is Mightier Than The
Regulator "
Please elaborate when you say that the issue has been resolved to quite an extent, have they made good your losses, have you been given any assurances from Kotak or SEBI or any one else? I'm sure that will help others to solve their pending grievances if any
SEBI OR RBI ARE YET TO REVERT / TAKE ACTION.
One must take up with the Regulators....but seek advise from Money Life.
We are very happy for you to know that your issue has been resolved. But as rightly asked by Mr. Deepak Khemani, we all would like to know the exact details (the way you have explained the problem in detail and at length) of the 'issue resolved' so that we, as investors know what to expect in case we face such a situation in future (god forbid) and since your problem has attracted comments, reactions, points from so many readers and investors, that I feel you owe it to them details of the 'issue resolved'.
Thank you in advance.
I agree 100 % that SEBI should have acted promptly.The complaint was lodged on 1st December 2010.
In a fraud case, where an employee is concerned, SEBI & RBI were very prompt in handling the CITI Bank case. An investors complaint should also receive equal attention specially if the complaint is against a BANK itself.
Today, it is because of an effective MEDIA that people have woken up from slumber. I hope going forward Money Life will play a much bigger role in protecting Investor Interests / taking up the cause of investors.
Mr.C.B.Bhave Chairman SEBI has taken many effective steps for Investor protection and I hope during his tenure WEALTH MANAGEMENT will be properly regulated.
Best Regards
There is someone who stands up and takes up issues fearlessly for investors and gives the right guidance.
Please keep up the good work.
We than complain that the capital market attracts hardly 2-3% of Indian savings. I strongly believe that if one does not understand a product stay away from trying exotic investment avenues.