BackCrackdown on Kerala microfinance firm helps expose Ponzi fraud
The owners were using the Popular Finance brand as a cover to dupe investors of their deposits, the police said
PremiumERNAKULAM : The police crackdown on Kerala-based Popular Finance, has revealed that the owners of the gold loan and microfinance company was running a Ponzi scheme, diverting funds to overseas locations, while paying early investors in the scheme with money received from new customers. The firm was also using the parent company as a cover to dupe investors’ deposits using an elaborate scheme involving shell companies, the police said.
Popular Finance, headquartered in remittance-fuelled Pathanamthitta district and 274 branches in Kerala, collected around ₹2,000 crore from thousands of investors, including non-resident Indians (NRIs), the police said.It also has branches in Karnataka, Haryana, Tamil Nadu and Maharashtra. The fraud was exposed partly owing to covid-19, the police added.
The firm was exposed when a large number of investors started withdrawing money due to the pandemic-induced financial stress. Besides, a default in promised returns created panic. The company responded by shutting down its branches last week, leaving thousands of depositors in the lurch. The promoters, including managing partner Thomas Daniel Roy, and wife Prabha were the first to abscond, but surrendered before the police this week. Thanks to a timely lookout notice issued by the police, their elder daughter and chief executive of the firm, Rinu Mariam Thomas, was arrested on Sunday, as she was trying to flee to Dubai.
P.S. Rajesh, the inspector in charge of the investigation, said the fraud raises the risk of exposure to even nationalized banks, and the promoters have diverted massive amounts to foreign countries. “They have re-pledged investor’s gold— an initial estimate of over ₹80 crore — with banks. They have also pledged properties and taken loans from nationalized banks. They have huge amounts deposited in the UAE and Australia where some of Roy’s family members are settled," said Rajesh.
Popular Finance operated as an NBFC since 1965 offering gold loans. It was forced to stop business activity in 2014 when Reserve Bank of India probe revealed that it was offering fixed deposit products, without authorisation. Popular Finance was a registered moneylender under the Kerala Moneylender’s Act (1958). The Kerala crime branch had filed a chargesheet against the family in 2019. Roy and Rinu were out on bail. The family changed its strategy to dupe people, by tricking them to purchase the shares of their shell companies, offering it as fixed deposits promising high returns. “Using the Popular Finance brand, they got investors to deposit money in the 15 partnership firms and LLPs that acted as shell companies," the police said.
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