Madoff redux: Was the Citi scam a Ponzi scheme?

We got him, we got him! The season of scams on Finance St was conspicuous by his absence: our own Bernard Madoff, the modern-day Charles Ponzi, that is.

Now we seem to have got him, and his name is Shivraj Puri, a relationship manager at Citibank’s Gurgaon branch, accused of defrauding its wealthy clientele.

Puri’s modus operandi was allegedly to raise money from the bank’s wealthy customers by promising them supernormal returns and then attempting to generate even higher returns in the stock market.

Some of the money, either from stock market operations or from new clients, was paid back to investors to give them the illusion of returns.
That’s so Madoff/Ponzi. The new money is used to show returns to the older customers.

“It is entirely possible that the operation was run at least partly as a Ponzi scheme, since some money has found its way back to clients as ‘returns’,” said one source familiar with the matter.

Madoff ran what was once the world’s largest hedge fund, giving stable returns to investors for decades by paying old investors money collected from new ones.

Puri is said to have run the racket through a sheaf of Citibank accounts and through at least three broking houses — Religare Securities, India Infoline and Bonanza Portfolio.

The brokerages were quick to freeze the accounts and clear their position on Tuesday.
“Puri, who is apparently one of the accused, is a client with Religare’s broking business in his individual capacity since June 2009 and all KYC formalities and other due diligence which is followed with regards to new account opening and client servicing, has been carried out and is complete as per prescribed regulatory and compliance norms,” according to a statement from the brokerage house.

“The accused had an account with India Infoline, which was opened in June 2010. It has been frozen after consultation with authorities,” said a spokesperson for India Infoline.

Bonanza Portfolio too said it has frozen the account and suspended all transactions.

It would be interesting to know the exact quantum of this scam.

Thankfully, the stock market on Tuesday did not think much about it.