Jacob Isaac and Popular Finance have had a long association, but it snapped a week ago. The retired professor from Bengaluru had been investing in the firm for three decades now. But after getting information from other investors that they had lost their deposits, Jacob visited his branch at Mathikere to learn that he was scammed of Rs 25 lakh.
“I had six accounts in my family’s name where I deposited nearly Rs 4 lakh each. Along with interest on these fixed deposits, the company owes me Rs 28 lakh,” Jacob, 60, tells TNM.
The elaborate Ponzi scheme by Popular Finance, a half-a-century old company headquartered in Pathanamthitta, Kerala, was exposed early last week. The firm which has been offering gold loans as a Non-Banking Finance Company (NBFC) since 1965, has been accused of defrauding thousands of investors, mostly senior citizens, with an elaborate plan based on shell companies and siphoning off money to Australia.
This sudden fall of the Popular group , which has enjoyed 50 long years of goodwill and trust, comes as a shock not just to its investors in Kerala but to non-resident Keralites who deposited lakhs in its branches outside the state. The company has 22 branches in Karnataka - its largest market outside of Kerala. Investors estimate they had Rs 200 crore worth of deposits in Karnataka alone. After that comes Tamil Nadu with 16 branches, Maharashtra (9) and Haryana (6).
According to the police, the firm’s Managing Director Thomas Daniel Roy, his wife Prabha and their three daughters had been trying to flee to Australia. They had sold all their assets in Kerala but were stuck due to the lockdown.
After investors in Kerala alerted the police upon losing their matured deposits, the couple surrendered and their daughter CEO Rinu Mariam Thomas was arrested from the Delhi Airport, while trying to fly to Dubai. Through the company, the firm had collected Rs 2000 crore as deposits from its investors.
In Karnataka, many of Popular’s investors are from the Malayali community who have settled in Karnataka for long. More than 80 percent of its investors, according to sources TNM spoke to, are elderly people and some of them had invested their life savings.
“There are retired couples who put all their money in the firm. Sometimes Rs 50 lakhs or 1.5 crore. It was an attractive option as the firm promised a higher interest rate compared to banks. For instance, if a nationalised bank gave 5 percent interest on Fixed Deposits, Popular Finance offered 9 percent,” Shajan George explained to TNM. Shajan’s elderly parents had lost close to Rs 15 lakh in the scam, after they had opened an account in the Mathikere branch decades ago. The company also offered gold loans on a higher interest rate, some say 12 percent, and it was the difference in interest (3 percent) which was their income, Shajan says.
The group’s modus operandi, Jacob Isaac adds, was simple. It was to use people’s goodwill to amass lots of money. The firm would recruit senior or retired bank employees who had lots of contacts, and make them branch managers. These branch managers would then get their connections to invest in the firm, which the latter would do so out of trust.
“To give you an example, our branch manager in Mathikere belonged to our Orthodox church. So there were at least 30-40 investors from the Orthodox church itself. They all trusted him due to the long association and goodwill. There were no questions asked,” explained Jacob. And until recently, it had worked well for the investors as they were receiving regular interest on their deposits.
What went wrong?
The situation eventually spiralled out of control in the last two weeks when several depositors decided to withdraw their deposits which had matured, but could not do so. This is when they learned that the company had been re-pledging the gold (received for loans) deposited in their branches, and taking loans from nationalised banks.
“Some of the bank managers protested against this, as the gold had to be kept as reserve in the branches. But eventually they were pressurised,” Jacob said. According to initial estimates, Rs 80 crore worth gold which the company held as security, had been re-pledged. Not just this, they had allegedly rerouted huge sums of money to the UAE and to Australia, where Roy and his family were planning to settle.
In order to collect more money, the firm collected more Fixed Deposits. However, they created 15 shell companies Limited Liability Partnerships that acted as shell companies and rerouted the money into these firms.
“Some of them were Saan Marine LLP, Saan Infrastructure LLP etc. The most shocking thing was, instead of Fixed Deposits, shares of these companies were sold to the elderly investors who did not realise this. They were not intimated by the branch managers either. apart from the receipt where it was marked that their money was received in return for shares purchased,” Jacob Isaac added. An LLP meant that shareholders would also receive dividend when the company made profits, and its partners too were not liable for the company’s loss making,” Shajan added. He added that several of these elderly investors would have overlooked the receipts they received from the shell companies.
While it was the coronavirus which eventually exposed the company, when promoters were in a pickle due to a number of factors. They had given a large number of microfinance loans which could not be recovered after the moratorium over COVID-19 kicked in.
Popular group had a shrimp-export business which slacked off during the lockdown. Moreover, with the lockdown, more people were taking gold loans and not paying interest. And lastly, the the pandemic hitting incomes, more savers were trying to withdraw the deposits which had matured, resulting in a liquidity crisis.