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Fraud companies: A tale of lofty promises and vanishing acts

In the past few years, many fraudulent non-banking finance and investment companies like Magnum Group have flourished in Lucknow and other parts of Uttar Pradesh.

lucknow Updated: Aug 19, 2013 10:54 IST
Rohit K Singh
Rohit K Singh
Hindustan Times

It’s the same story everywhere.

At first they take gullible people by storm with lofty promises of multiplying their investments by several folds and then, they vanish with all the money leaving the investors with nothing but broken dreams and a deep hole in the pocket.

In the past few years, many fraudulent non-banking finance and investment companies like Magnum Group have flourished in the city and other parts of Uttar Pradesh.

At least one firm in the city vanishes each year with hard earned money of people, after promising them the moon.

“These firms generally raise the money from people offering them different Ponzi schemes and multi level marketing (MLM) investments. They ask each investor to lure others with a promise of huge returns. However, the operators disappear after some time, leaving the investors in the lurch,” said Mohammed Haider, a corporate lawyer.

He added, “In March this year, corporate affairs minister Sachin Pilot had revealed that there are at least 22,000 companies in the country which mainly account for instances of cheating and fraud. Only 12,375 out 34,754 companies operational in the country have been permitted by the Reserve Bank of India (RBI)”.

The lawyer said Maharashtra and Gujarat have been a hub of such Ponzi scheme firms but their number is increasing gradually in the city and the state, the most recent example being the Magnum Group that allegedly committed a multicrore fraud.

So, how can we keep ourselves from falling into the trap?

Haider’s advice: Common sense is the key.

He said, “Multiple growth is not possible and any lucrative offer should be crosschecked properly. Investors should not put in their money in companies promising more than 12.5% profit since it is against the RBI guidelines.”

He said the investors should also do a thorough background check on the companies’ investments.

“Investors should go through offer documents before investing into such companies,” he added. Haider said regulatory authorities like RBI should carry out sensitisation drives more frequently to spread awareness about such schemes or else people would continue to fall in the trap.

Viplav Majumdar, certified finance planner, said, “We need to check the business model of the person or the organisation, which tries to lure us with promises of higher returns. If a person is offering you higher return, always check how much money he needs to generate to fund you, his agents, his employees and himself.”

Initially, companies give returns to many people to earn the ‘word of mouth’ and later default, he said, adding, these things happen repeatedly just because of our greed to earn hefty returns in short period.


Magnum Group allegedly committed multi-crore frauds with hundreds of investors in Lucknow and other districts.

The group directors -- Arun, Varun and Neelam Chaturvedi -allegedly duped the investors of a lot of money, promising them attractive returns on deposits, offering plots at low rates and assuring to provide huge profits in stock trading.

At least six FIRs have been registered against the company directors at different police stations in the city during the past 15 days.


It is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors rather than from profit earned by the individual or organisation running the operation.


Knowing well that no one likes to bet on a lame horse, the investments companies gift cars and other expensive gifts to their prospective investors and business partners to lure them.

They promise investors major profits on their deposits and extra rate of interests if they convince others to invest too.
Besides, the investors are also assured of being provided plots or flats on low rates.

First Published: Aug 19, 2013 10:48 IST