Mumbai, October 23, 2017

Markets regulator Sebi has launched an investigation into a scam which involves unscrupulous agents who are making a killing by fraudulently transferring shares from the account of a deceased holder, which are in physical form and have not been claimed by the nominee or the legal heir, into illegal accounts.

These agents use unlawful means to get hold of shares unclaimed by legal heir of the deceased, convert them into demat (shares into electronic form) mode to sell in the market, transfer the funds into bank accounts set up for the purpose, and make cash withdrawals. It is suspected that the fraud is being carried out by the agents in connivance with employees of share transfer agencies, companies, banks and some government offices, sources said. It is estimated that the scam runs into crores of rupees, they said. The sources in depositories, which manage share accounts, and share transfer agents said there have been cases where shares in dematerialized accounts too were targeted by fraudsters.

Sebi does not comment on ongoing probes and investigations involving regulated entities.

The investigation by the regulator started after a top finance professional complained to Sebi that shares of two companies together worth about Rs 23 lakh, which were in the name of two of his relatives (a couple who died decades ago in the US) were fraudulently transferred into an illegal account, sold and money taken out through cash withdrawals. In this case, the agents opened demat accounts in the names of the original owners and forged their signatures. The heir to the owners had no clue about this. Surprisingly, this happened despite the heir informing the share transfer agent and the companies whose securities were transferred illegally about the demise of the couple. Investigations by the two companies have shown that there were about 20 such cases which have been unearthed in the last few years.

"This fraud extends to both shares and unclaimed dividends, and is very rampant," said a veteran from the depository industry. "We are not sure if only people associated with share transfer agents are involved, or employees of the companies and banks too are hand in glove with fraudsters," the official said.

Under the present rule, the heir or the nominee needs a court-approved succession certificate to transfer holdings of a deceased member.

One of the easy sources of information for these fraudsters are the websites of companies and stock exchanges. Current law requires companies and exchanges to publish every year the list of people whose dividends are unclaimed. "These fraudsters use this data and mostly target those accounts in which dividend is unclaimed for several years," said an official from a share register which has been hit by a similar fraud.

In an attempt to eliminate such frauds, depositories and brokerages houses had asked Sebi to make holding shares compulsory only in the demat form. The Depositories Act, 1996, however, gives people the option to own shares in physical form as well. Therefore, the government needs to amend the law if Sebi were to make it mandatory to hold shares only in the demat form, an official with a depository said.

Sebi has been asking companies to be vigilant against such frauds. Last year, Sharepro Services, a share transfer agent, is alleged to have defrauded several companies. Unclaimed dividends worth crores of rupees were illegally withdrawn by some Sharepro employees. Instead of crediting or sending dividends to the rightful owners, some top Sharepro executives instructed banks to transfer the dividends into the accounts held by their employees. "They (share transfer agents) were asked to improve supervision but nothing seems to have happened," the depository industry veteran said.

How it works

  • Once share transfer agents get information about unclaimed securities of a deceased holder, they use fraudulent methods to obtain the name and the signature of the person through the company's register when the shares were issued
  • Using forged documents, they obtain a voter's ID and a PAN card in the name of the deceased holder
  • With these two proofs of identity and address, they open a bank and a demat account
  • They apply to the company's share transfer agent to obtain duplicate certificates, saying physical shares have been lost
  • A few days after the shares are transferred into the demat account, they sell the same
  • The money is credited into the bank account opened for this purpose
  • They withdraw the money only through cash transactions, in several tranches, so that there is no trail

[The Times of India]