Citibank Multicrore Fraud: Was only Puri to be blamed?

sanjeevaggarwal.jpgOne cardinal principle of investing is – “If it sounds too good to be true, then it probably isn’t”. When the greed gets better of you and you are willing to take the risk of something not having a sound foundation. Its easy to recognize such “deals” from a distance. They have no logical reason why one should make an unusual return for the time period of the investment. Unless one can find a classic arbitrage or fundamentally great investment instrument that others have either missed or cannot access, there is no reason for unusually high returns from any instrument.

The latest scandal to hit India is the Citibank fraud perpetrated by the Branch manager, Shivraj Puri of Citibank in Gurgaon. It is said that he was working in collision with other Citibank officers as well. One of the customers, Sanjeev Agarwal, has filed a case against Citibank. This is how he describes how he was defrauded:

“In the last one year, he (Shivraj Puri) used to get blank documents signed by me and transfer funds into his own accounts. Due to this, the money in my account kept depreciating. However, he kept sending me bank statements regularly which showed inflated amounts,” added Aggarwal.

So, Aggarwal was signing blank documents and handing them over to Puri who would – as we say in India – “do the needful”. Signed Blank Documents! And the amount this dude usurped from Aggarwal was a cool Rs 32 crores (USD 7 million). It is quite obvious that Aggarwal was probably a village bumpkin, right? WRONG! Aggarwal is an entrepreneur. His last company that he founded was the largest BPO in India which was sold to IBM. That is where his millions came from. Not only did this guy who is a Venture Capital (Helion Advisors) guy now was duped, so were the promoters of Hero Group. I am wondering what this VC must be suggesting the companies he is incubating?

Somehow I don’t get the picture. A rich and – I am assuming – smart (at least smart enough to create Daksh, the largest BPO and sell to IBM) entrepreneur signs blank documents and hands it over to this branch manager of Citibank branch, who pretty happily keeps depositing his money into his own accounts to the tune of millions?!!

Does that even sound sane?

For most of these outlandish scams – like Maddoff’s – its the perpetrators who are caught and tried. And they somehow seem to have defrauded High Networth Individuals. People who are smart, have wealth and have all the connections. They aren’t your village bumpkins who sell their lands to pay the money.

It just doesn’t sound right to me!

I am convinced that these scams are as much a creation of those “duped” as much as they are the creation of those duping them. For, until the returns – outlandish and unnatural – seem to be coming fine, these HNWIs are fine looking the other way and even giving blank signed documents to a small time branch manager of a local bank. As soon as this local branch manager gets ambitious and plays smart with these guys and looks for his “pound of flesh”, all hell breaks lose.

It is the greed of the guy who runs the roulette table obviously, but it is the greed of the guy guys around the table betting their money on the gamble as well – knowingly (the operative word!) – who are equally to be blamed.

Postscript: Apparently, the case has taken a strange turn now. Aggarwal – our friend who hands out blank signed documents to local managers – now suggests that Citibank senior execs tried to bribe him so he would not go to the police and file a case against them. Interesting circus going on all around!

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