The Citibank fraud has made wealth managers run for damage control
Mumbai: The Rs 400 crore scandal at Citibank India has brought under special scrutiny the role of relationship managers across banks and companies providing wealth management services, according to a report in the Business Standard.
A Citibank relationship manager, Shivaraj Puri, has been accused of duping high net worth individuals (HNIs) by selling them fraudulent schemes and diverting the money into accounts belonging to his wife and other relatives. The Gurgaon police on Wednesday launched an investigation into the fraud by the Citibank employee.
Each wealth management service provider has its own definition of an HNI. For most, those with investible assets worth more than $1 million (over Rs 4.5 crore) are HNIs.
The newspaper report said the Citibank employee was able to defraud his clients because many of the relationship managers have the authority to issue third-party cheques on behalf of their clients. The report citing unnamed wealth management sources said, HNIs give relationship managers power of attorney to operate their accounts. The Citibank scam could have been because of this.
Most wealth management firms have started a two-pronged probe into their HNI accounts, the report said. They are conducting audit of HNI accounts and also probing the background of investment schemes sold by relationship managers to clients.
“There is a health check-up going on in our firm. We have initiated an audit of all the dealings that our relationship managers have with their clients,” The newspaper report said quoting the compliance head of a wealth management firm, who did not want to be identified.
“Investments in schemes, especially of Citi, are being looked into to verify if they have been authenticated by the bank,” said the compliance head.
The modus operandi of Puri was quite simple. Puri asked clients to invest in schemes that were offering more than 20 per cent annual returns. He showed forged documents to prove these schemes were approved by Citibank’s investment product committee and the regulator. After obtaining the client’s approval, there were two possible scenarios. He either got a blank cheque from the client and filled up the receiver’s name. Or, he had the clients issue cheques favouring his wife and relatives.
The money was then transferred from these accounts for investments through a brokerage firm. The report quoting Citibank sources said the money is likely to be recovered because of the trail, but the bank’s main concern is the damage to its reputation.
Many wealth management companies have also started communicating with their clients to tell them their money is in safe hands. The head of a private wealth firm said, “Damage control is what a company or organisation engages in as top priority. The first thing is convincing clients that their money is safe and in responsible hands. Also, banks will need to see if there was a failure of controls (checks and balances) within the set-up.”
Bank clients, including non-resident Indians, have also made inquiries at branches to check if their money was safe. While initial reports suggest that 20 citibank clients could have been duped by Puri, the number could be more, the report said.