InvestorQ : Can you explain what fraud that Anugrah Stock Broking did in the stock markets?
NISHA Nayak made post

Can you explain what fraud that Anugrah Stock Broking did in the stock markets?

Priyanka N answered.
3 years ago

This is a case of taking unnecessary risks with client money, false promises and finally a touch of reality. Anugrah Stock Broking is a Mumbai based broker which had raised money from prospective investors with promises to deliver super normal returns from stocks.

The scam broke out when the liquidity taps tightened and customers stopped receiving the money committed to them. Here is a quick update on what exactly happened in the Anugrah Stock Broking case.

Like other brokers, Anugrah was also executing transactions on behalf of clients in the stock market with the use of Power of Attorney. The only difference was that Anugrah was taking inordinate risks which clients were unaware of.

The entire scam broke out when investors who had trusted Anugrah could not find the shares in their demat account because Anugrah had used the Power of Attorney to dispose of the shares and transfer the funds to their own accounts.

The problem actually began in an unauthorized derivative advisory service that Anugrah was running through an associate company Om Shri Sai Investment. Of course, client money from Anugrah would be ploughed into Om Sai making risky derivative trades.

There was one more key player in this scam which was Teji Mandi Analytics Limited, the flagship of Anugrah Stock Broking, through which they had raised Rs.800 crore for derivatives trading. When the markets went against them, they just ended belly up.

Here is how you can summarize the scheme. Anugrah Stock Broking collects crores of rupees from gullible as well as willing clients. It tells them they can give POA of their demat accounts for use as margins in F&O trading. All is well and legitimate till that point of time.

However, when the derivative market behaves funny, the losses start to mount. Derivatives are after all a leveraged game and you cannot control the losses once they start mounting. That was the problem that the Anugrah promoters faced.

When losses mounted, they had to sell the shares, which was of course, client shares. This was a Ponzi scheme. When you offer fantastic returns, people rush to invest in your scheme. The flows are so good that X’s inflows are used to pay handsome returns to Y and it goes on till one day the chain breaks.