The Long Con

GOING FOR GREED

Inside the murky world of Heera Gold and a finance scheme which makes no sense

“When anyone offers you a chance to earn lots of money without risk, don’t listen to the rest of their sentence.” – Charlie Munger

A cautionary advice from Munger, you’d think. But, when you call in the deputy chief minister of Telangana, Mohammed Ali, to inaugurate a food packaging plant in 2015, and present with him is one of the top 100 Non-Resident Indian business personalities, your curiosity is sufficiently piqued. That’s when you notice the burkha-clad founder, Nowhera Shaik, claiming she was awarded that title by Sushma Swaraj in Dubai, UAE.

Twenty-one months after the inauguration, the plant does not exist.

One of the offices, of this interesting company, is in a residential building in Kurla, Mumbai. The name–Heera Fin Capital–is scribbled on the door. It claims to be a recipient of a Good Transition Certificate – whatever that means – from ICICI Bank. That doesn’t check out. In an emailed reply, an ICICI Bank spokesperson said: “ICICI Bank would like to clarify that it has not given any award/certificate to Nowhera Shaik or her group.”

And then you uncover that Shaik has photoshopped herself in with Swaraj; clearly, she was present at the event but never made it to the official photographs.

Needless to say, not much about this enterprise passes the smell test.

So, why are we talking about this?

You may have come across City Limouzines fraud, whose founder allegedly collected over Rs 1,000 crore of public funds by floating various car rental schemes. Or you may have heard of Pearls Group — title sponsors of first four editions of the Kabaddi World Cup – who mopped up over Rs 45,000 crore from nearly five crore investors.

Usually, the skeletons come tumbling out when promoters decamp with the cash and  investor complaints start piling up. But what if you could talk about them when they are in their honeymoon phase, handing out too-good-to-be-true returns?

This is that story. More importantly, this is the story on a subject that isn’t particularly well understood in India. Islamic finance. India is a country with a 15% Muslim population, highest in a non-Islamic country and second highest in the world. About 180 million Muslims. But for years on end, Islamic finance has been regulated by the Reserve Bank of India (RBI) and has also attracted a lot of controversy. As a result, a large chunk of India’s population has remained financially excluded. This means, they have had to look elsewhere to invest their money. End result: a dubious world of unregulated investment schemes.

Now you see her

Now you don’t (Image credit: Gray Matter)

The Deal

Say you are a Muslim with Rs 1 lakh to invest. You come across Heera Business Group with its many companies and investment schemes claiming to operate Islamic, interest-free, shariah-compliant halal businesses led by founder, Shaik. The investment schemes are meant for Muslim depositors only.

What are the businesses and how do they make money? Let’s count. They claim to purchase raw gold dust from mines in Ghana, process it and sell refined gold bars in Dubai and India. Plus, other forms of gold trading. They also operate at least three jewellery showrooms. And a packaged food business under which they sell, branded food products like rice, pulses, spices, milk powder. And a domestic bottled-water business. The list goes on.

If you invest Rs 1 lakh in their gold scheme, you start receiving profits. About Rs 3,200 per month. That’s an annual return of 38%. Many investors claim that they’ve even received Rs 4,000-5,000 per month on Rs 1 lakh until a few years ago, making it a whopping 60-70% return on investment per annum.

But wait, there’s more. The group claims it retains share of profits for itself in a 60:40 or 50:50 ratio before it is disbursed to investors. So investor returns are only roughly half the story. Essentially, the company seems to be clearing anywhere between 75-95% per annum. And that’s before factoring in dividend distribution tax (15%) and corporate taxes. In order to give even a 40% return, Heera needs to have anywhere between 120-150% profit margins.

That’s unheard of in a commodity trading business.

After a one year lock-in period, you are free to withdraw your original investment. No hiccups there. Many investors withdraw their initial investments in a year just to test the waters. Having undertaken this excuse of a due diligence, they reinvest higher amounts with more conviction – also of their friends and relatives, now that their faith in the company is reinforced.

Due to the potent mix of religious advocacy and easy money, some keep bringing outside funds and turn into agents and sub-agents working on commissions. A doctor who shuttered his practice, now runs the Kurla office. Another, put his pharmacy on rent and runs the Bhiwandi office. One lady, along with her husband not only sold her house and invested her life savings, but also convinced her brother-in-law to sell his shop and invest. Her entire family is now into this. Umpteen such testimonials exist – all recorded on video, published on YouTube account: heeragold1234.

Very quickly, some essential background: Few years ago, at a social gathering, I (Suhail) received a pitch like this from a relative who was an investor herself. I let it slip. Since then, every few moons, someone would mention it in passing and I would ignore it like one ignores persistent email offers of $10 million from various Nigerian billionaires. But after almost six years, as recently as June, someone brought it up again, forcing me to ask the dreaded what-if question.

Here’s a good deal. What if I can finally stop complaining about the  size of my portfolio? What if I can kiss goodbye to my plain Jane demat account?

What. If. Allah. Has. Plans. For. Me?

Hence, this deep dive into infinite riches.

Once you are convinced, you get a few brochures and a membership application form. Logo, serial number, applicant details, space for photo, alphabet codes to pick the right investment scheme, T&Cs in fine print legalese, ‘For Office Use Only’. You also provide details of your bank account in which you want your profits to be remitted. On submitting your application you get a signed, stamped receipt. Within a few days your application is processed and Heera’s Hyderabad office sends you a ‘Unit Purchase Receipt’ or ‘Shareholder Agreement’ or similar sounding documents which have many barcodes and membership numbers printed on colourful bond paper with watermarks. In about 30 days, your deposit gets rolled over into the business and your monthly profits start rolling in.

Ka-ching!

Membership card given to investors

 

Investment receipt

A business of the Muslims, by the Muslims, for the Muslims?

Let’s clear this Muslim business first. What is halal and why is it so important for Muslims? Simply put, in Islam most acts neatly fall into two main buckets: Halal (permitted) or Haram (prohibited). This is a guiding philosophy in most matters of life. Marriage, divorce, inheritance, business, contracts, almost everything.

Goat butchered in a specific way? Halal. Pork? Haram. Rooh Afza? Halal. Alcohol? Haram. Alok Nath? Halal. Prem Chopra? Haram.

In finance and investment matters usury, interest or other instrument like debt funds, corporate bonds  –  anything that promises a fixed rate of return is Haram. An equity investment with an exposure to both profits and losses resulting from such business activity is halal. Of  course the business itself should be halal. So, investment in an alcohol manufacturer like United Breweries? Haram. Investment in auto (Maruti Suzuki) or paints (Asian Paints) manufacturers? Halal.

This is germane because many Muslims, even those who are not overly pious, do observe this code. Many Muslims donate interest received in their bank’s savings accounts to charities. That leaves a large slice of the community’s investable-income pie waiting on the sidelines; constantly on the hunt for such ‘halal businesses’ with lucrative returns.

Trading in gold, silver and other commodities? Halal, of course.

Enter Heera Gold Exim Ltd.

Or Heera Gold Exports & Imports.

Or Heera Gold Exports & Imports Pvt. Ltd.

Or Heera Group of Companies.

There are a whole host of names of companies and it is not quite clear what would be apt to call this shape shifting entity. For narrative simplicity, let’s call it Heera Gold.

What  is Heera Gold?

There are no easy answers. It is a maze. Let’s start with the flagship: Heera Gold Exim Pvt Ltd which was incorporated in September, 2010. On 11 August, 2011, it was converted into a public company and its name changed to Heera Gold Exim Ltd, with its headquarters in Hyderabad. This is the entity that exists today.

Heera Gold Exports & Imports (note the missing ‘Ltd’) is a firm registered in Andhra Pradesh, with a Tirupati address. It is most likely a partnership firm. And since it’s not a company, there are no public filings. We don’t know if Shaik is even the owner or partner in this firm. This shroud of mystery is important because at least some investors in 2010, have deposited their cheques in this firm. On paper, nothing connects Heera Exim Ltd to Heera Gold Exports & Imports.

What about Heera Group of Companies and Heera Gold Exports & Imports Pvt Ltd, then? These are not companies or firms as far as we looked up. We care about them because there are receipts and stamps on some documents with these names. Again, there’s no explanation about their formation or any relation to the registered entities.

The financials of HGEL – Heera Gold Exim Ltd, the public limited company are not much to look at:

  • FY ending 31st Mar ’11 – Loss of Rs 39,257
  • FY ending 31st Mar ’12 – Profit of Rs 1,951,914 (Rs 19.51 lacs)
  • FY ending 31st Mar ’13 – Profit of Rs 40,41366 (Rs 40.41 lacs)
  • FY ending 31st Mar ’14 – Profit of Rs 59,57,609 (Rs 59.57 lacs)

Let’s just look at FY11. Despite the loss, all investors claim of receiving their monthly profits. Shaik never explained how. Even in subsequent years as the company seems to be making a steady Rs 20 lakh jump in profits, it’s still a fraction of the claims made by agents and Shaik, of thousands of investors with crores of investments. These numbers don’t jive together with the story on the ground.

Heera Gold’s registered office in Masab Tank, Hyderabad.

On the ground

Earlier last month, in September 2016, I set out for Hyderabad. To Heera Group’s head office located at Masab Tank, to find out more. With ten companies, thousands of investors and crores of funds, I had a certain picture of their group head office. What I saw was a small commercial building, various businesses running operations on the ground floor – a private cab operator, a Haj & Umrah travels company, a Hero Motors showroom and a men’s parlour. One of these shops belonged to Heera Textiles; the entire first floor occupied by Heera Group companies. But right at the entrance, there was a notice from a Debt Recovery Tribunal on a case between Indian Overseas Bank and Shaik, putting a stay on recovery of property until 8 September, 2016.

Shutters were drawn down on three of the five stores, which were branded as Heera Fancy World. There was a working jewellery showroom. I was welcomed in the office and I met the lady manning the front desk who refused to disclose anything about the company and asked me to send queries to heeragolds@gmail.com – an address reportedly accessed by both Shaik and her personal assistant, Molly Thomas.

Multiple emails, with a detailed questionnaire sent to this address went unanswered.

I did meet Thomas though; only after showing up uninvited at their second operational office. This office was more well put up than their head office. Thomas too didn’t reveal much. She was not authorised to speak on behalf of the company, and she added that she was a mere employee who kept her head down, clocked in her hours and did what she was told to do. A little puzzling though, that a mere employee had access to tens of CCTV cameras streaming from various locations at her desk. She wouldn’t confirm if Shaik was in town and also expressed inability to initiate any meeting with her, until directly authorised.

In search of answers, I spent time in Hyderabad visiting the offices of Food, Safety & Standards Authority of India (FSSAI) and Bureau of Indian Standards (BIS) and the white collar offences team of the crime branch, Hyderabad police. I also spoke to agents, sub-agents, ex-employees, and investors for this story – few were willing to go on record.

Apart from being a hobby photoshopper, who is Shaik? She is a director in at least ten companies in India — running the gamut from gold exports and imports, jewellery, financial services, packaged foods, bottled water plant, Haj & Umrah tours, trading blankets and bedsheets from China. All co-founded and co-owned by her, Mubarak Jan Shaik and Khamar Jan Shaik (perhaps sisters going by most accounts, but The Ken couldn’t independently confirm this). Shaik is a self-professed pious Muslim from Tirupati. The group also operates from satellite offices in Mumbai and Dubai. They have retail jewellery shops in Mumbai and Navi Mumbai and claims warehouses and offices in Dubai and other parts of UAE.

Nowhera Shaik, CEO of Heera Business Group. Image credit: Company website

Depending on which way the wind is blowing, she is referred to as Dr, Aalima (gendered title for Islamic scholar), CEO, chairman, director, MD, CMD or Aapa. Aapa is commonly used in Urdu-speaking and Muslim circles to address any lady with respect, especially one who’s pious or religious.

All public functions and all her speeches come with a generous dose of:

Bismillah  (In the name of God)

InshaAllah  (God willing)

Alhamdulillah (All Praise Due to God)

-Sermons of Quranic verses, Prophet Muhammad’s teachings, Islamic history

– Religious chants and songs (naaths) filling up the background

Heera Group’s brochures exhort readers to participate in this special opportunity of handsome profits and contribute to the cause of an interest-free society.

“Heera Group – Towards an interest-free world” – their tagline.

Lest you forget, Shaik and and her followers dutifully remind you that part of the profits retained by the promoters is used to run an Islamic school for girls and other avenues to empower and work towards upliftment of the financially weaker sections within the community.

But back to business. Gold trading of course, is just one. The flagship one. And then there are others: blankets imported from China into Dubai and India under “Diamond” mark. File it under Heera Textiles Limited. A bottled-water business under the brand “Heera Pure Drops”. File it under Heera Ice Drop Pvt Ltd?  No, because all water business is conducted under Heera Retail (Hyderabad) Pvt Ltd, a different company, also cofounded by same set of promoters.

To a packed auditorium in various Annual General Meetings of shareholders, at Shanmukhananda Hall, Matunga (March ’13), at Y.B.Chavan Center, Khar (November ’12), at Bandra-Kurla Complex grounds (May ’11) or any other large venue, all in Mumbai, depositors line up like sheep for their share of profits.

On prodding, the refrain from all and sundry is a variant of: “Suhail bhaicompany ke licences, kaagzaat woh sab lawyer aur CA log jaane. Lekin company munafa karti hogi tabhi tau barabar itne saalon se returns toh de rahi hai na?”. Translation: Lawyers and CA’s know the legalese. Unlike other fly-by-night operators this group has never skipped a beat for the last so many years. So everything must be in order.

Let me be upfront about this. During my reporting, I didn’t come across a single investor, who has lost money. There might have been some delays in profits or final withdrawal, but everybody has got their ‘due share of profits’ and principal. People have made money. The problem then? Almost everything. Let’s go through them one by one.

Nothing checks out

None of the Heera Group companies have approvals to solicit public funds. In an emailed response, a spokesperson at Sebi said: “Deposit collection by NBFCs/Companies do not come under the regulatory purview of Sebi and they are exempted from the definition of CIS under Section 11(AA) of the Sebi Act. Only one entity Gift Collective Investment Management Company Limited is registered with Sebi as a Collective Investment Management Company. However, no scheme has been launched so far by Gift Collective Investment Management Company Limited. Heera Gold Exports & Imports is not registered with Sebi.”

RBI’s list of NBFC companies that are authorized to solicit public funds under strict regulatory norms didn’t throw up any Heera Group firms either.

That’s a big, red flag.

How about other licenses? Food, BIS/ISI, Health & Safety.

Heera Foodex Pvt Ltd is registered at same address as HGEL and other group companies. The manufacturing/packaging unit is situated at:

Heera Foodex Largescale Manufacturing & Packing Industry, Etharpally Village, Nakkalapalli Panchayat, Moinabad Mandal, Ranga Reddy District, Telangana – 501504

This is the same plant which was inaugurated by deputy chief minister of Telangana in January ’15. And yet no company or plant by that name exists at that address. Nor is there any intimation of a change in location. Foodex continues to use the above address in their packaging and is selling these products in Hyderabad and Mumbai. They seem to fly under the radar by processing home-deliveries for orders over the phone. You wouldn’t know if you visit their website – heerafoodex.com or heerafoodbazar.com. The site lists three delivery locations – Hyderabad, Bengaluru and Mumbai. And two currency options INR and USD with the default set to USD.

Deeper still.

Back in Hyderabad, after doing rounds of various offices at Commissioner of Food Safety, Health & Family Welfare at DMHS campus Sultan Bazaar, Koti, I was finally directed to food safety office located at IPM campus, Narayanaguda, Hyderabad. I met an officer, Niranjan, manning the Ranga Reddy district office who couldn’t locate Heera’s FSSAI licence in his records. In an emailed response, MA Khaleel, food safety officer, Ranga Reddy (R.R) District said:

“During investigation, I enquired the above said licence details, found that there is no such name/adress in Etherpally Village, Moinabad Mandal, Rangareddy District, and the above Licence number is not related to R.R District.”

Back in August ’12 based on a complaint by Member of Parliament, Asaduddin Owaisi, the Central Crime Station at Hyderabad Police had filed a First Information Report (FIR) against Shaik u/s 420 (cheating) and 406  R/w 34 IPC (criminal breach of trust). Earlier this year, in August, Shaik released a video clarifying this. She said this crime was thoroughly investigated by WCO (White Collar Offences) team of Hyderabad crime branch and closed due to “Lack of Evidence” and “Un occurred: False” information. Then in her own signature style, which I’ve come to identify only too well, with an air of righteous indignation she flashed copies of both the FIR and closure copy.

 

FIR closure as claimed by Shaik in a YouTube video addressed to the press

On my last day in Hyderabad, I visited crime branch and met investigating officer Harinath Babu of WCO, Team VI who is now handling this case. I then contacted and sent a query to the office of Avinash Mohanty, deputy commissioner of police, CCS, detective department. In an emailed reply, the department said that the “case is under investigation at present.”In September, I visited one of their outlets in Mumbai and bought a jar of milk powder. Not only did it have an invalid address and a missing FSSAI mark, but it did not have a batch number, manufacturing date or an expiry date. Absurd as this may sound, the neck of the jar had the words “MILKODAY” moulded on its plastic. Perhaps a brand, but whose? Certainly not of Heera Foodex. Similarly, underside of the jar had “Sri Lakshmi Hyd Foods” moulded on it. I couldn’t find any current company with such a brand of milk powder. Though there seems to be an abandoned trademark application.

There is some good news when it comes to the water business, Heera Pure Drops, conducted under Heera Retail (Hyderabad) Pvt Ltd. Vijay Kumar, district officer, Sangareddy, district in which the bottling plant is situated, told me over the phone that the FSSAI licence is valid until Oct’16 and that they’ve also applied for a renewal.

How about ISI licenses issued by Bureau of Indian Standards? Both water and milk powder fall under the category of mandatory certification. I visited Mr. Ameeruzzamaan in BIS office at Moula Ali, Hyderabad.

Good news: Heera Pure Drops has a valid ISI Licence.

Bad News: Heera Foodex Pvt Ltd hasn’t been issued any ISI licence for milk powder.

This fact is confirmed from the sample jar I’d purchased from their outlet too. It had no ISI numbers or any other BIS marking.

So, a company that claims to make at least 80% return on investments, tells you to pledge your Islamic values and your life’s savings to it doesn’t have any license to do most of the businesses that it claims to do.

None of it makes sense. Perhaps, only a matter of time till the house of cards comes tumbling down.

(Edit note: A sentence was changed in this copy for more clarity on Nowhera Shaik photoshopping herself in with Sushma Swaraj.)

 Source : https://the-ken.com/the-long-con/
GOING FOR GREED Inside the murky world of Heera Gold and a finance scheme which makes no sense SUHAIL KAZI, ASHISH K. MISHRA “When anyone offers you a chance to earn lots of money without risk, don’t listen to the rest of their sentence.” – Charlie Munger A cautionary advice from Munger, you’d think. But, when you call in the deputy chief minister of Telangana, Mohammed Ali, to inaugurate a food packaging plant in 2015, and present with him is one of the top 100 Non-Resident Indian business personalities, your curiosity is sufficiently piqued. That’s when you notice the burkha-clad founder, Nowhera…

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