Explaining the Naked Calls
Sir, Kaisa Chal Raha hai apka Investment? Kya aap share market trading me daily 10k ka profit kamana chahte ho? The men, on the other hand, asked me about my investment history and lured me with profits from with daily trading tips.
You would have heard this conversation before if you are an investor in the stock market or recently opened an account for trading?
Retail investors, who are scared of the equity market but are not satisfied with returns from bank fixed deposits, often fall victim to shady schemes that promise them the moon.
Let me Explain
Have you read this in Social Media stating that INR 1 lacs Invested in Sensex since inception would have made you INR 3.9 Cr, Steller 38,900% Return.
Well, you have missed that bus, as you were busy investing in Fixed Deposit with returns of 8-10% p.a., and your close friends, were going for an exotic vacation in Maui and Canary Islands.
Well, you envy your friends and suddenly you get a call saying that there is a bus which is going to go must faster and we (Stock Advisor) know that bus and will make you a 500 % return in 1 year. Catch us and be Billionaire and go for exotic vacations.
You are urged to step onto that bus for the bull ride, aren’t you?
Well, that’s how the scam happens and Indore is particularly famous for Indori Poha and Stock Market Scams also known as Ponzi Schemes.
Ponzi scheme - A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors.
As per CNBC -Authorities uncovered 60 alleged Ponzi schemes last year with a total of $3.25billion in investor funds — the highest amount since around the time of the Great Recession.
The question is how is a scam so lucrative that educated people fall into that trap?
On the most widely used and most common frauds is where the fraudulent investment adviser tries to attract the investors by convincing them that they can provide a profit of as much as 25% per month or double the investment in a year or so with over 90% accuracy on their tips & recommendation.
Will you trust that? Well, a desperate man will surely trust that?
Gaining confidence is the easiest part, these fraudulent investment advisers give 3 days trial period, where during the trial period, results are 100% accurate.
Seeing these trial periods, the investors subscribe to the recommended plan of these fraudulent investment advisers.
Well, your question will be how these fraudsters managed to get 100% accurate recommendations during the trial period.
Well, here it is the way how it works.
Note: Fraudulent investment advisers don't send tips to just 1 person but to thousands of people.
Let's take a scenario wherein 1000 people agreed to opt for Trail tips.
Fraudulent investment adviser sends messages to sell a stock to 500 people and to buy to other 500 people for the same stock. Either the stock will go up or go down. Therefore, on day 1, they have sent a successful tip to 500 people and people who lost money i.e., the rest 500 will be out of the funnel.
On day two, they again send a message to sell another stock to 250 people and buy the stock to 250 people. Obviously, again one group will receive a correct recommendation and the other 250 people will be out of the funnel as they lost money.
On the last day of the, they send buy suggestions to 125 people and sell suggestions to other groups of 125 people. Hence, 125 people will receive a correct tip for three consecutive days and will be a loyal customer of the Fraud Investment Advisor.
Now, these 125 people will think that all the recommendations provided by these fraudulent investment advisers for 3 continuous days are correct and most of them will subscribe to the tips and recommendation plan and become the victim of one of the most common frauds in the Indian investment market.
Soon, after subscribing to the tips from these Investment Advisers after paying hefty fees, the investor will start losing money. These tips aren't working anymore and you will end up losing hard-earned money.
Bernard Madoff ran the largest Ponzi scheme in history, a $65 billion scam affecting thousands of investors that came to light in 2008.
Now the most important question Do the retail & small investors who invest under the guidance of such Investment Advisers has any legal right.
Under the present IA Regulations and other applicable laws, the small and retail investors can approach SEBI for recovering its losses or they may move to Consumer Disputes Redressal Commission (depending upon the facts of the dispute).
Well, Only advice stay alert and invest with proper due diligence and remember one thing even God cannot predict 100% return in a month’s time..