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Kasaragod police stumble on Rs 500-crore pyramid scheme while investigating kidnap case

While around 4,300 investors in Kasaragod lost Rs 47 crore in a scheme that promised 264 per cent returns, the fraudulent scheme also has a jewellery business as a cover to launder money.

Published: 08th May 2021 11:00 AM  |   Last Updated: 08th May 2021 11:00 AM   |  A+A-

money fraud

For representational purposes (Express Illustrations)

Express News Service

KASARAGOD: Kasaragod police stumbled on a Rs 500-crore pyramid scheme that duped thousands of investors while they were investigating an abduction case.

Police arrested Mohammed Javed (28), a native of Udyawar in Manjeshwar, believed to be an early investor in the illegal money circulation scheme. "He made Rs 1.08 crore but around 4,300 persons who were added to the network by him lost around Rs 47 crore," said Kasaragod DySP PP Sadanandan, an expert in financial fraud.

Police suspect that the fraudulent scheme has spread its tentacles in Kerala, Karnataka, the UAE, and Thailand. Sadanandan said that the alleged fraud was perpetrated by a company called 'My Club Trades' or MCT, which its website says has an office in Bangkok.

But the website does not name the people behind the company.  "But we suspect the directors of MCT are based in Malappuram. MCT has an Android app on Play Store through which investment and payouts are made," said Sadanandan.

The officer said that the app was released in April 2019 and downloaded over 50,000 times. The pyramid scheme also dates back to the same time. He said investors are promised preposterous returns of 264 per cent on their investments and a 10 per cent enrolment commission on the investment they bring in.

"The network grows in ga eometric progression, and the key players ensure that the right and left sides of the network grow equally. There is another commission to ensure the left-right balance," he said. Several investors told police that they were promised 1 per cent returns on their investment every day, barring weekends, for one year.  

The return is called a loyalty commission. So a person investing Rs 1 lakh gets Rs 24,000 in a month. So investors will recoup their money only if they stay invested for five months. In a year, they will more than double their money to Rs 2.64 lakh.

"Those running the fraudulent scheme were clearly taking money from the new investors to pay the earlier investors. That is why they insist on the left-right balance of the pyramid," he said.

But the problem with such bottom-heavy pyramid schemes is at any point when it goes bust, 75 per cent of the investors will lose money, said Sadanandan, author of 'Corporate Deceptions', a book on the various forms of money circulation schemes and economic frauds.

He said that Javed was just one of the early investors in the scheme in Manjeshwar and directly enrolled 453 persons to the network and together they lost around Rs 47 crore. "But the size of the fraud could be anywhere close to Rs 500 crore. And it is a conservative estimate," he said.

The officer used the username and password of Javed to see the transactions. "Using his login ID, we can see only his downline members, not his upline members," he said. Sadanandan said that investors are spread in several Gulf countries, including the UAE, and Karnataka, and across Kerala. 

Gold cover

Sadanandan said there was a gold business thrown into the pyramid scheme to launder money. The investors were told to route their returns through Prince Gold, a jewellery retail chain, to convert their black money white. Javed, too, had invested a part of the Rs 1.07 crore he made in Prince Gold, he said. There is another app called My Gold to route the money to Prince Gold, said the DySP.

The My Gold app was released in Play Store in February 2020 and was downloaded over 500 times. Sadanandan said that Prince Gold, run by one Faisal in Malappuram, had built two shops in Kasaragod and Vadakkara. "Without a shadow of a doubt, it is an illegal scheme designed to dupe people," he said.

The abduction

Two weeks ago, a group of persons abducted Javed. When the police arrested the abductors, they said they were investors in My Club Trades. "They abducted Javed to get their money back," said Sadanandan.

Simultaneously, the police started an investigation and found My Club Trades bilked many investors of crores of rupees. "Our investigation is on course to arrest the brains behind the fraud," he said.

A financial expert in Chennai said people were "forced to chase" such high-risk fraudulent schemes because the bank deposits and small saving schemes were giving low returns. "Instead of slashing interest rates, the government should ensure reasonable returns from schemes such as National Saving Certificate, Post Office Saving Scheme, PPF, Kisan Vikas Patra," he said.



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