Online scam
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This article has been written by Ayush Tiwari, a student of Symbiosis Law School, NOIDA. This article discusses the 3700 crores online trading scam famously known as The Noida Fraud case.

This article has been published by Sneha Mahawar. 

Introduction

In this age of the internet where everything is online, trading is also no exception. There is no doubt that trading in recent times has become easier because of the internet and you can trade from anywhere and at any time and everything is at the tip of your finger. However, it has made you vulnerable to scammers as well. The Noida Fraud case is just an example of these types of online trading scams, hence, this article aims to analyse the scam and state the legal provisions that can be used if one becomes a victim of such crimes. 

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An analysis of the scam

This scam was India’s first online Ponzi scheme; for those who don’t know what a Ponzi scheme is, It is named after “Charles Ponzi” who used this scheme for the first time in the 1920s in the United States. ‘A Ponzi scheme is a financial scam in which investors are promised high returns in exchange for their money. Participants in Ponzi schemes focus all of their efforts on obtaining new customers. The funds are raised from new investors and were utilised to pay “returns” to the original investors.’ 

This scam was conspired by Anubhav Mittal a B.Tech graduate, and his two aides Shridhar Prasad an MBA, and Mahesh Dayal who worked as the technical head of the scam. The scam was carried out with the help of Mittal’s four companies, Ablaze Info Solutions Pvt Ltd, Social Trade Pvt Ltd, 3W Digital Pvt Ltd, and Intmaart Pvt Ltd. These companies operated through an online portal which was named socialtrade.biz and then later as frenzzup.com. Through these portals, they flushed nearly Rs 3700 crore into their bank accounts within a year. 

Through these portals they offered various schemes to invest money; these schemes ranged between Rs. 5,750 to 57,500. The investors were promised that all they had to do after making the investment was click on links provided to them and like specific posts on social media. According to investors, the company acquired the business from a third party to increase the latter’s online hits on a digital platform. Each day, the investors got 25, 50, 75, or 125 URLs on their phones, depending on the subscription options they chose. The company paid Rs 5 per like through the links and also claimed that for every like given through the links they were earning Rs 6 and they were getting paid by the concerned companies and Facebook as well and called it “digital marketing”. The company also claimed that it would track the links to verify that investors followed through and did not use any fraudulent tactics to achieve their objective every day. 

Then, after some time, customers began approaching the police with different complaints about not receiving money, and FIRs were filed against the firm and its owner. The matter was soon taken over by the Special Task Force, who discovered that the connections or URLs provided to the investors were fraudulent, and the corporation had no commercial dealings with any third parties. Even all the URLs ended up at the same Ghaziabad-based fake server. The scheme was bound to fail as money that came due to subscription was the only revenue the company generated. STF found out that over a lakh police complaints were filed against the company for non-payment of the dues and within a year they fraudulently took over Rs 3,700 crore from more than 6 lakh people. The trio was arrested soon after by the Directorate of Enforcement (ED) under the Prevention of Money Laundering Act, 2002 (PMLA) and police also found Rs 520 crore deposited in a dozen accounts of the firm all over the country. 

Legal provisions

In the Noida fraud case, the ED, as well as the UP Police, registered the case under various provisions of Indian Law which are mentioned as under:

Indian Penal Code, 1860

The following sections of the Indian Penal Code were applicable in this case, which are as follows:

  • Section 34– According to this Section, if numerous people commit criminal conduct with the same intent, each of them will be held accountable for the offence as if it were committed by the person. The punishment for this crime is provided in Section 120-B of the IPC.
  • Section 406– It imposes punishment for criminal breach of trust by imprisonment of any sort for a time up to three years, a fine, or both.
  • Section 420– Under this Section, if a person deceives someone and induces him:
  1. to deliver any property to a person, or 
  2. to form or alter, or destroy the entire or any part of valuable security, or something signed or sealed which can be converted into a valuable security

Shall face imprisonment of either kind for a term up to seven years, and will also be charged with a fine.

  • Section 467– Whoever forges a document claiming to be valuable security, a will, or a document claiming to give authority to any person to make or transfer valuable security, or to receive the principal, interest, or dividends thereon, or to receive or deliver any money, movable property, or valuable security, or any document claiming to be an acquittance or receipt acknowledging the payment of money, or an acquittance. Any person who does it shall be punished with life imprisonment or a term which can extend to ten years and fine as well.
  • Section 468–  Anyone who commits forgery with the intent of using the forged document or electronic record for the purpose of defrauding is punishable by up to seven years in jail as well as a fine.
  • Section 471–  Anyone who uses as genuine any document that he knows or has cause to believe is a forged document shall be penalised as if he had fabricated it.

Prize Chits and Money Circulation Schemes (Banning) Act, 1978

The following provisions of the Prize Chits and Money Circulation Schemes (Banning) Act,1978 were applicable in the Noida fraud case:

  • Section 3–  It deals with the banning of prize chits and money circulation schemes or enrolment as members or participation therein. The punishment for this crime is provided in Section 4 of the same Act.
  • Section 5– It deals with the other offences in connection with prize chits or money circulation schemes and their penalties.
  • Section 6– It holds that every person part of a company will be jointly and severally liable under this Section.

Besides the above-mentioned provisions, the Indian legal framework offers a plethora of legal provisions which are capable of dealing with financial frauds, online or otherwise. These provisions are given under various statutes which are mentioned as under:  

The Companies Act, 2013 

The Companies Act, 2013 deals from the perspective of corporate frauds. Under Section 447 of the same Act ‘corporate fraud’ is defined as “It involves any omission, hiding of a fact, or abuse of position offered by any individual with the aim to deceive, take benefit from, or harm the company’s, investors’, or shareholders’ interests, regardless of whether any unjust gain or loss is involved.” This provision also states that the person who misrepresents himself or herself is subject to imprisonment for a term of 6 months to 10 years, as well as a fine. If the fraud is against the public interest, the minimum sentence is three years in jail.

The Chit Funds Act, 1982

Under The Chit Funds Act, 1982 the schemes which are allowed to function are regulated and registered by the state governments, and the officer who is in charge of regulation and the security deposit is the Registrar. The Registrar is also responsible for attaching the security deposit and the property if a company acts to defy the Act. All chit companies are prohibited from appropriating chit collections or receiving any deposits according to the Act. Fund operators switched to higher-value funds due to increased operating costs.

Why are people falling for online trading scams

Scams using online trading platforms are widely publicised on the internet and social media. They usually offer large, guaranteed earnings and use false endorsements to entice others to engage in their scams. Consumers are then directed to professional-looking websites where they are persuaded to invest, either through a managed account where the firm conducts transactions on their behalf or by trading directly on the firm’s platform. The majority of clients claim that they first received some returns from the company to give the impression that their trade was successful. They’ll be urged to increase their investment or refer a friend or family member to do so. The returns, however, eventually stop, the customer’s account is suspended, and the customers are no longer able to contact the firm.

How to protect oneself

  • Try to research on your own.
  • Not giving credentials to anyone or allowing them to use or control your phone.
  • Check for whether they are real agents and not just imitating someone else.
  • Pressurised to invest more and quickly to get unimaginable rewards.
  • Be aware of advertisements on the internet and on social media that promise large returns from online investing.

Modus Operandi for genuine earning

In this case, the fraudsters assured the users that they would earn money for clicking on the fake links provided by them. Usually, such luring ads have headlines like “make quick money sitting at home”, “how can students earn up to Rs. 15,000 per month”, “easy money just click this link” etc. However, this is not the case with genuine ads. They work in a completely different manner. In fact, it is quite the opposite. The user develops a website and registers to host advertisements on it. When visitors to the user’s website click on the advertisements, the user receives a set amount of money per click. 

Conclusion

The Noida fraud case is a stellar example of how modern techies tend to fraud people of their hard-earned money. This is only one of the many scams that take place on a very frequent basis in these times. It is important for users to beware of luring schemes and understand the fact that huge amounts of money will never come easy. A person will know a fraud when he sees one if he’s aware of the laws and procedures relating to investments. This has grown to be a very important requirement for citizens across the world now that the world is constantly evolving technologically. 

References

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