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Banking on faith: How thousands of people lost their life savings in IMA Jewels scam

The RBI had sounded a warning about IMA in 2016 for collecting unauthorised deposits from the public.

, ET Bureau|
Last Updated: Jun 29, 2019, 06.10 AM IST|Original: Jun 28, 2019, 11.02 PM IST
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RBI had sounded a warning about parent I Monetary Advisory (IMA) in August 2016.
An investment scheme that appeared to follow Islamic precepts, run by a man who was super religious, and great returns for years--until they suddenly stopped. Mohammed Mansoor Khan, founder of Bengaluru-based IMA Jewels, also had a flair for YouTube appearances. But it took an audio message in which he threatened to commit suicide for investors, mostly Muslim, to actually panic—by then they hadn’t received any money for about five months.

Islamic law bans the earning of interest, equating that with usury. Instead, investors get a share of profit or bear the losses. Khan’s genius lay in persuading the faithful to entrust their money to him. For a man of such religiosity couldn’t really be a con man, could he? Until he’s brought to justice, his investors won’t know for sure. Khan has disappeared without trace, blaming sundry politicians and builders for his woes. The money involved—Rs 1,000 crore or maybe Rs 2,000 crore. No exact estimate is available.

The Reserve Bank of India (RBI) had sounded a warning about parent I Monetary Advisory (IMA) in August 2016. It informed the Karnataka Police about the allegedly fraudulent practices of the Bengaluru-based private financial firm. By then, the IMA Group was a well-established investment firm with a decade-old presence, thanks to thousands of middle and lower-middle class investors who entrusted their small savings in what seems to have been yet another pyramid scheme.

The RBI had gathered that, prima facie, the company was operating various schemes and was collecting–in an unauthorised manner--deposits from the public. The Karnataka police, however, gave the company a clean chit on the grounds that IMA was registered with the Registrar of Companies and was giving interest-free financial options for new business startups and that there were no complaints against the business.

The same year, after demonetisation in November, income tax authorities searched the IMA office. The IT department is said to have informed the Enforcement Directorate (ED) about possible fraud at the firm, but this too didn’t seem to go anywhere. Toward the end of 2018, the RBI once again wrote to the Karnataka government. This time, it alerted the top bureaucracy about IMA investing funds raised from investors overseas, a violation of RBI guidelines.

The state government referred the matter to the police and the revenue department over violations of the Karnataka Protection of Interest of Depositors in Financial Establishment (KPID) Act, 2004. Based on this, in December 2018, an assistant commissioner of the revenue department issued a public notice through newspapers, warning investors and asking them to approach the department with complaints.

No one complained. Around the same time, another multi-crore scam by the investment firm Ambidant Marketing Pvt Ltd got all the attention. “While we received 7,500 complaints against Ambidant, not even one complaint was registered against IMA,” said LC Nagaraj, the assistant commissioner who issued the public notice.

“Also, the case coincided with the state government withdrawing the power of assistant commissioners to probe cases under the KPID Act. The matter ended there. We did not proceed with the investigation.” At this point, Khan posted a YouTube video in which he threatened defamation proceedings against the official.

“IMA is a limited liability partnership (LLP) company and it does not come under the ambit of KPID Act. This is an attempt to sabotage the image of the company,” he said, while assuring his investors that their money was in safe hands. In the last 13 years, thousands of investors, mostly Muslims, had invested in IMA Jewels with the assurance of high returns. Investors were ‘partners’ and didn’t get ‘interest’ but a share in ‘profit.’ At its peak, IMA doled out a monthly ‘profit’ of 7%. All payments were by cheque, increasing trust.

When investors stopped getting paid in April, Khan assured them that the delay was due to election curbs and would be resolved soon. But before that, in February and March, the profit percentage had dropped, causing consternation.

Short of capital, Khan was trying to raise funds through banks. He met state revenue minister RV Deshapande, seeking a no-objection certificate (NoC) to raise bank loans. The meeting was facilitated by MLA R Roshan Baig, who was recently suspended by the Congress for anti-party activity.

At this juncture, state Central Crime Branch boss Alok Kumar summoned Khan for interrogation on June 1. Khan had been summoned in a different case--blackmail by a regional television channel–in which the IMA boss was the complainant.

“We interrogated him for five hours and we grew suspicious about his business. He was asked to appear again with necessary documents a week later,” Kumar told ET. But Khan disappeared after posting an audio message to the police commissioner that his firm was in trouble and threatening suicide. He accused Baig of not returning Rs 400 crore. Kumar was elevated to the post of city police commissioner about 10 days after Khan took off. The audio recording saw thousands turn up in front of the IMA head office in Bengaluru on June 10.

In the three weeks since then, more than 40,000 investors have filed complaints against Khan and his firm. Fearing a backlash, the state government has formed a Special Investigation Team to investigate the case. The opposition Bharatiya Janata Party (BJP) has demanded a Central Bureau of Investigation (CBI) probe, given that politicians from the Janata Dal (Secular) and Congress—partners in the state coalition government--are being linked to the scam.

While the police were seeking a red alert to track Khan – who is believed to be in Dubai – he posted another YouTube video in which he reportedly expressed his willingness to surrender. He again named politicians and developers as being benefactors of his largesse. He held them responsible for ruining his business.

“I have a list of names of those who did extortion and harassment. I will place it all before the police and the judiciary. Let the law take its course,” he said in the video, urging a CBI probe himself. The police pressing ahead with efforts to bring him back.

Several pyramid schemes have been reported in the past 15 years in the state. Home minister MB Patil said the state police is investigating 23 cases of fraud against investment companies, including the 14-year-old Vini Vinc case. To be sure, it’s dwarfed by the Saradha scam in West Bengal, which is estimated to have collected Rs 20,000-30,000 crore from investors.

“Slow trial, investigating agencies’ failure to produce strong evidence, accused person’s attempt to bargain with the system by delaying the proceedings, lead to an inordinate delay in cases of finance frauds reaching a logical end. Victims rarely get their investments back,” said KBK Swamy, advocate at the Karnataka High Court.

Thiruvenagadam BC, who specialises in commercial and corporate law, said that the IMA case should ideally be handed over to the central government agencies as the business is registered under the LLP Act. “The appropriate authority is the National Company Law Tribunal,” he said. The biggest challenge, however, is that people fall prey to scams.

“Public memory is short,” said M Jayadev, chair, finance and accounting at the Indian Institute of Management (IIM), Bangalore. “Easy money is always a fatal attraction. That is why financial literacy matters a lot. Despite our country having a large banking system, people are not connected to organised financial services. In a falling interest rate scenario, interest rates on deposits are not providing returns to hedge the cost of inflation, hence frustrated people approach such ‘scheme’ operators.”

City-based chartered accountant B N Pattabhi noted that that modus operandi of financial schemes such as IMA, Saradha, Satyam or Vini Vinc were similar. “Promoters may come up with a novel idea every time, but the end goal is the same,” he said.

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