KARNATAKA ONLINE TRADING FRAUDS: LOSSES SKYROCKET FROM RS 23 CRORE IN 2022 TO RS 903 CRORE BY MID-2024

In April this year, Saurav Kumar*, a resident of Bengaluru’s Electronics City, came across an advertisement for stock market investments while browsing Facebook. Intrigued, Kumar joined the WhatsApp group that the Facebook post recommended, where stock market tips were regularly shared.

Many of the group members were sharing the gains made on their investments and their success in getting shares allocated during initial public offerings (IPOs). Some among them had valid questions, and the admins clarified those.

One of the group admins shared a link to an online trading platform with Kumar, which in hindsight seemed a lookalike of a popular online stock broking platform. Since it was from one of the two popular app stores, he did not think twice about the genuineness of the app and downloaded it.

Soon, he was advised to invest in a few companies, which he did, and the app showed that the value of his investments was growing steadily.

In tranches, Kumar, a 47-year-old senior executive, invested a total of Rs 1.46 crore between April and May. However, when he attempted to withdraw his funds, he was abruptly removed from the group, and all communication from the scammers ceased. Kumar later complained to the cybercrime cell of the police.

Also read: The great, big WhatsApp stock market scam and how to avoid it

Kumar is not alone. The stock market boom has coincided with a sharp rise in online trading fraud. Data sourced by Moneycontrol from the Karnataka Criminal Investigation Department (CID) showed that the number of online trading scams in the state soared from 530 cases in 2022 to 2,630 cases in 2023, and reached 3,079 cases by July 2024.

Correspondingly, financial losses surged from Rs 23 crore in 2022 to Rs 300 crore in 2023, and a staggering Rs 903 crore between January and July 2024, with an average loss of approximately Rs 30 lakh per case. The Whitefield Cyber Economic and Narcotics police station alone reported 530 cases, with investors collectively losing Rs 178 crore from January to July 2024.

However, the actual scale of the scam may be even bigger, as many victims either take time to realise they’ve been defrauded or refrain from reporting the crime to the police. The total losses in the state could surpass Rs 1,500 crore by year’s end, as new cases continue to be registered daily.

The modus operandi

“Most of the victims are educated professionals, including techies, who are drawn by enticing advertisements on social media platforms like Instagram and Facebook, or via instant messaging apps such as WhatsApp and Telegram,” C Vamsi Krishna, deputy inspector general of police (economic offences), Criminal Investigation Department, told Moneycontrol. “Victims are lured into believing their money is being invested in the stock market, but in reality, they are being scammed.”

Also read: Why army veterans are becoming a prime target for financial frauds

Victims only discover the deception when they try to withdraw their funds, at which point the fraudsters either go silent or disappear entirely. “Their hard-earned money is often converted into cryptocurrency and laundered abroad,” Krishna said.

Last month, the Directorate of Enforcement (ED) arrested four people suspected of involvement in cyber investment scams that defrauded victims of over Rs 25 crore, using fake apps. In September 2023, Bengaluru City Police also unearthed a massive Rs 854-crore cyber investment fraud, arresting six people.

 

Bengaluru-based online brokerage Groww has detected around 7,000 fake stock broking apps, social media pages or groups and APKs (Android package kits, used to distribute and install apps on phones)  that look similar to its own properties in name or user interface.

"The recent rise of fraudulent entities has been extremely concerning. To address this, Groww has intensified its efforts towards investor education and has been proactively reporting fraudulent entities to relevant authorities,” the company said in a statement to Moneycontrol.

Both Zerodha and Groww have filed multiple FIRs with the police to take down such apps and organisations mimicking them. However, the companies did not share details about the police complaints or FIRs.

Also read: Cyber financial fraud: What RBI can do to protect senior citizen victims

In many cases, administrators of these criminal groups on WhatsApp or Telegram share links and ask people to download specific APK files. Some of these apps are also hosted on the Apple App Store and Google Play Store, which enhances the credibility of these scammers.

An added problem is that with multiple instances of data breaches and of leaks by unscrupulous elements, phone numbers and other information such as Aadhaar details have been easily available for sale on the dark web.

In several instances, scammers call potential victims with these details and profess to be agents or sub-brokers of these stockbroking apps. However, many discount broking firms do not have any agents and are do-it-yourself platforms. Groww added in the statement that it regularly communicates with its customers and educates them about such scammers.

Also read: Investors Beware: Upstox cautions against imposters luring customers

The 'clone' apps, though designed to display growing profits, are fraudulent trading portals. The fraudsters regularly share trading tips to gain victims’ trust. To further build confidence, they may allow small initial withdrawals with some profit. Encouraged, victims often invest larger sums or even borrow from friends and family to do so.

However, they soon find themselves unable to withdraw their money, as fraudsters claim a threshold must be reached before withdrawals can be made. By the time victims realise they’ve been scammed, the fraudsters disappear. For example, a 47-year-old woman from Bengaluru's Viveknagar locality lost Rs 73.7 lakh after being promised investments in shares and IPOs of a US-based company through a WhatsApp group. She made several investments between January and March this year.

Mule accounts

Police have found that many fraudsters use mule accounts to perpetrate these scams. “They often lure people with offers of work-from-home or part-time jobs, gaining control of their bank accounts under various pretexts. In a few cases, the bank accounts of unsuspecting people, like autorickshaw drivers, etc, are used, with fraudsters convincing them that the government is transferring money under some scheme. They collect KYC (know your customer) documents from these individuals and open multiple accounts in their names, which they then use to conduct fraudulent transactions,” explained Krishna.

Also read: MC Investigation: Social media accounts impersonate celebrity traders and defraud investors of lakhs

In several other cases, people willingly share their KYC documents and rent out their bank accounts for a few thousand rupees, allowing fraudsters to move funds. “Those who assist in this manner are also committing a crime and will be held accountable under the law,” Krishna warned.

 

Tightening KYC norms

CID Karnataka recently held a coordination meeting with representatives from more than 100 banks and financial institutions in the state to tighten KYC norms and improve coordination with financial institutions.  “We’ve instructed all banks and financial institutions to strengthen KYC protocols and to report any unusual transactions immediately,” said Krishna.

Another challenge is that many fraudsters operate across state lines. Their strategy is to set up operations in one state while targeting victims in another, making it harder for the police to track them. While coordination between cyber police units across states has improved, addressing these cases still takes time.

Also read: SEBI warns investors of fraud trading schemes offered by entities posing as FPIs

“Most victims are high-earning professionals who lack time or patience to thoroughly research investment plans and instead rely on these fraudulent investment groups with enticing advertisements. Many were promised shares and IPOs from reputed companies at discounted rates, but these promises almost always have turned out to be false,” Krishna explained.

“By staying alert and avoiding too-good-to-be-true offers, investors can protect themselves from falling prey to these increasingly sophisticated scams. The key to preventing such frauds lies in promoting financial literacy, raising awareness, and encouraging vigilance among investors. It's crucial that individuals invest only through trusted, SEBI (Securities and Exchange Board of India)-regulated brokers and agencies. This will ensure their financial decisions are informed and secure,” said Krishna.

(*name changed)

Also read: In a first, Karnataka police to deploy AI tools for fund trail analysis, dark web monitoring

2024-09-16T09:44:01Z dg43tfdfdgfd