Oct. 8, 2012

Investor implicates HSBC in international scheme

Already under federal investigation for global fraud after a series of WND reports, banking giant HSBC is engaged in a systematic scheme to defraud citizens of India who live abroad out of billion of dollars in investment accounts, according to an Indian source who has provided evidence to WND.

The evidence offered by “Mr. Kumar,” a customer of HSBC Bank PLC both in the United Kingdom and in India, includes documentation from his investment account, his correspondence with HSBC officials, documents misused by the bank and various legal opinions detailing the manner in which the fraud was committed.

Kumar, a British citizen and a solicitor who lives in London, has requested WND withhold his name due to concerns of possible reprisal from the bank that would damage his professional standing and personal reputation.

Kumar claims HSBC has defrauded him of millions of Indian rupees he invested in a wealth management-mutual fund account the bank offers in India to Indians living abroad.

In a phone conversation from London, Kumar explained to WND that in 2005, he opened with HSBC an account to invest broadly in the Indian stock market through a mutual fund that would be sourced and managed by HSBC in India.

“HSBC sources money from non-resident Indians to invest in the Indian stock market,” Kumar explained.

In 2005, he said, he received a solicitation from HSBC to invest in the Indian government’s “India Shining” marketing campaign and was promised superior returns compared to what a retail investor could get in the West.

HSBC promised to facilitate seamless transfers of funds from Kumar’s HSBC account in London to the HSBC account in India.

“It made sense to me, so I stopped investing in my retirement account in London and I began investing in India with HSBC,” Kumar said.

Indian laws do not permit non-Indians to invest in the lucrative Indian market, so banks like HSBC target non-resident Indians to invest their surplus into the Indian stock and property markets to benefit from the boom in equities and property values over the last decade.

Kumar charged that HSBC committed a sophisticated investment fraud that resulted in the over 10 million Indian rupees – $189,500 – he invested since 2005 being worth only 1.6 million Indian rupees today, despite steady gains made in the Bombay Stock Exchange Sensitive Index, the BSE SENSEX.

The value of the BSE SENSEX has virtually doubled from its closing peak of 9397.93 in 2005 to its current market value, closing at 18823.91 on Oct. 1.

Meanwhile, HSBC has apologized for a “shameful” systems breakdown from 2004 to 2010 and is prepared to pay hundreds of millions of dollars in fines in a scandal that was exposed in a series of investigative WND reports that began in February. John Cruz, a former HSBC vice president and relationship manager in New York, turned over 1,000 pages of evidence to WND he pulled from a bank computer system before he was fired. He was terminated in 2010, after two years at HSBC, for “poor performance.” But he contends he was let go because senior management didn’t want to him to pursue his personal investigation.

Cruz previously told WND he met with special agents with the IRS criminal division in April and handed over a computer disc with copies of his internal documents. The agents, according to Cruz, were overwhelmed with the volume and detail of the information, calling it “mind-boggling.”

As WND reported, law enforcement authorities sat on Cruz’s allegations until the story was exposed by WND.

A Senate report released last month presents evidence HSBC abetted massive money laundering by Iran, terrorist organizations, drug cartels and organized criminals throughout the world. The report said HSBC transferred $19 billion for Iran and $7 billion in physical cash for Mexico.

WND also reported evidence that Eric Holder’s Justice Department has not investigated money-laundering charges in deference to bank clients of his Washington-based law firm, where Holder was a partner prior to joining the Obama administration.

Not alone

Kumar has met personally with other well-known non-resident Indians in London who, he says, have fallen prey to the same practices by HSBC. He estimates that several thousand non-resident Indians have been affected by the alleged scam.

His problems began in October 2005 when Orijit signed a power of attorney, giving HSBC Ltd. in India complete discretionary authority to make decisions managing mutual funds on his behalf, without having first having to seek and obtain his permission.

At that time, various HSBC bank officials assured Kumar that the investments were safe and HSBC would responsibly follow investment rules in the U.K. and India. The officials argued the bank is registered with numerous regulators in both countries and is heavily audited on a regular basis.

But Kumar explained that the fraud started at the beginning of the relationship with HSBC, when the bank got him to sign what amounts to a blind letter of instruction.

“I do feel foolish as a solicitor admitting to it,” he said, “but at the time, when the relationship commenced, HSBC in India insisted this was the only way the investment account could work.”

Kumar explained HSBC got him to sign the letter by arguing the only way the retirement investment account in India could work was if HSBC in India could act on his behalf without first having to consult with him. The bank reasoned that “the Asian markets change very rapidly.”

“HSBC said the bank needed a blind letter of instruction because London is 9,000 kilometers away from HSBC in India, separated by five and a half hours time difference, and the Indian stock market moves up and down very fast,” Kumar explained.

The bank further explained, according to Kumar: “By the time the Indian stock market starts sinking, we get in touch with you, you get in the office and get back to us with a completed letter of instruction specific to the situation, the markets in Asia may be closed and your investment wiped out.”

HSBC investment officials also explained the mechanism of signing a blind letter of instruction is typically used by the bank in similar investment structures set up for many other non-resident Indians investing in the Indian equity and properties markets.

HSBC repeatedly reassured Kumar his account was protected, because signing the blind letter of authorization would not absolve HSBC investment officers in India from having to adhere to Indian rules and regulations regarding investments in the Indian market.

“The one sensible thing I did was to preserve all communications with the bank, so I now have a complete record of everything HSBC said to me and all communications, whether by email, fax or by postal service,” he said.

“I intend to hold HSBC responsible for the losses they incurred in my account,” he said. “HSBC as portfolio manager is liable for losses and damages acting as investment portfolio manager under the strict rules and regulations determined by SEBI, the Securities and Exchange Board of India.”

Circumventing law

Kumar’s main argument is that in using the blind letters of instruction when acting as a portfolio manager in his investment account, HSBC traded his account for the financial advantage of the bank by churning his portfolio. In this process, the bank makes money on the entry and exit load, resulting in the loss to him of millions of rupees, in direct violation of HSBC’s legal responsibilities as a portfolio manager defined by SEBI rules and regulations in India.

After taking substantial losses in his investment account, Kumar became concerned HSBC might have circumvented investment rules and regulations in India.

When he asked HSBC to produce the certificate of portfolio management – a document Indian investment law requires all banks to have when managing funds for customers in the Indian market, including both residents and non-residents – he realized to his horror that HSBC did not have any such certificate. The realization caused him to fear HSBC had circumvented the entire regulatory regime governing portfolio managers in India.

After a forensic and legal examination of the HSBC blank letters of instruction, Kumar’s lawyers believe he has a strong legal argument that HSBC acted fraudulently.

“We have been provided with emails indicating that HSBC Ltd. acted contrary to express instructions given by our client, [Mr. Kumar], and substitute its own judgment on investment decisions HSBC made in our client’s account,” wrote attorney Pingal Khan of PXV Law Partners in New Delhi in a legal opinion dated July 6.

The opinion authored by PXV Law Partners was delivered to Douglas Flint, the group chairman of HSBC bank so HSBC in London could realize the extent of the practices.

The letter further stated, “The SEBI in the past initiated criminal prosecution against persons for repeated violation of the Portfolio Management regulations.”

Kumar’s lawyers in the U.K. provided written records to the board members and global chairman of HSBC PLC in London.

What was the bank’s response?

“So far, I’m unfortunately not surprised to say the bank has denied all wrong doing,” Kumar told WND.

Kumar said he has documented a series of meetings with HSBC officials in London in which they apologized for the losses and assured him they would make whole his investment account in India.

“So far, that has not happened,” Kumar said. “HSBC has not reimbursed me anything for my investment account losses in India.”

Kumar also suggested HSBC should face regulatory consequences both in the U.K. and in India.

“HSBC officials over a period of time have systematically asked customers for blind letters of instruction,” Kumar insisted. “The HSBC board should be reminded of the dictum ‘Res ipsa loquitor,’ i.e., the evidence speaks for itself.

“The bank can deny such wrong doings,” he said, “but what does HSBC intend to do about the evidence against it now has been shared with WND? Does HSBC plan to continue to deny all such wrong doings till such time regulators actually haul up the bank?”

Kumar called on HSBC to take responsible action in his case.

“HSBC’s CEO, Stuart Gulliver, has on numerous instances claimed that the bank will follow a path of ‘courageous integrity.’” Kumar said. “It is now time such values were actually implemented.”

http://www.wnd.com/2012/10/another-fraud-charge-against-global-banking-giant/print/