Pearls of hope in Mumbai just a mirage after Ponzi scheme

The scale of the Indian Pearls Ponzi scam is monument­al; more than 50 million people were fleeced of $10bn.

Mohammad Kheadir watches with his wife Sajeeda Begum, as his son Muqeeth, and his daughter Sana do homework at their home in Mumbai, India, February 9, 2016.

“My house, sir, very small, sir, standing room only,” Mohammed Khadir jokes, a little embarrassed, as we near the Behram Nagar slum, not far from Mumbai harbour.

We park the car and follow him through a labyrinth of tiny alley­ways and across open sewers. The alleys smell of a shearing shed when a mob’s been penned in overnight, of lanolin and piss.

There are mosques and narrow shops. Cows are tethered to posts. Children run screaming and giggling through the alleys. Women beat washing. It’s a city within a city, with its own order and its own rules. The settlement has grown and grown, and houses are stacked upon houses like a rickety Lego set.

“Come sir, this way,” says Moham­med as we approach a doorway. We climb a steel ladder holding a knotted rope, through his neighbour’s living room and then up another level, through someone else’s kitchen, and into his home on the third level. The room is the size of a large caravan and it is where Mohammed and his wife and two children eat, sleep, relax and study. It is fastid­iously clean and a fan whirrs overhead. There’s a small fridge at one end and his wife, Sajeeda, is preparing the evening meal.

We take off our shoes and sit on the floor and then Mohammed takes us through the story of how he and Sajeeda, and millions of other poor Indians like them, unwittingly financed the $62 million purchase of the Sheraton Mirage on the Gold Coast, and then chipped in another $20m for the renovations.

The scale of the Indian Pearls Ponzi scam is monument­al; more than 50 million people, more than double the population of Australia, were fleeced of $10 billion. The investors were promised plots of land and told their investments would double in five years and quadruple in 10.

But there was no land, and there would be no returns. Its scams ran for 20 years and vast sums were sent out of India, including at least $133m to Australia.

The money was used to fund an opulent life for company founder Nirmal Singh Bhangoo and his relatives, who also bought cricket teams and television stations.

Pearls executives had access to politicians in India and they sailed through the rigorous security checks at the Australian high commission in Delhi for meetings with Austrade and former Queensland premier Anna Bligh.

There were invitations to dinners at NSW Parliament House with Barry O’Farrell, where Bhangoo was honoured and praised for his contribution to relations and trade between India and Aus­tralia. These connections led to the purchase of land and hotels in Queensland and Melbourne and, according to Indian media, to Madagascar and Dubai.

Celebrities such as cricketer Brett Lee spruiked the company: “It’s not about only being a brand ambassador, but I am proud to be a family member of Pearls Group.” Bollywood stars were also paid handsomely to sell the message.

And while the enormous figures are perversely impressive, the tragedy is to be found in the min­utiae. It can be tallied in 10-rupee increments.

Ten rupees, 20 cents, was how much Sajeeda, 36, squirrelled away in her purse, forgoing an auto­rickshaw. Instead, each day she would walk 3km through the chaos and humidity of Mumbai to a market and then trudge home again with the shopping.

Each month, Mohammed, 38, a peon, an office assistant in the city answering phones, delivering mail and greeting guests, would give Sajeeda money from his monthly salary of $200 to manage the household budget. She would find myriad small ways to save a bit here and there to stash away for the education of their two kids, or for their weddings. At the market, she would rifle through the prod­uce that others had rejected with an eye for a bargain, saving another­ 10 rupees.

Her son, Muqeeth, 12, and daughter, Sana, 11, are immacul­ately dressed but she confesses it is in the cheapest of cloth and all hand-sewn. All those little savings of 10 rupees added up and each month Sajeeda managed to save an impressive 550 rupees, $11.40. Mohammed says she is a very determin­ed woman.

She started this savings regimen a few years ago, after Mohammed’s cousin, Nahid, came for a chat. Nahid had become an agent for Pearls. They didn’t know anything about the company but they trusted Nahid. She was family and a good person.

“She talked to my wife about the Pearls investment. She said it was a good scheme and after five years you will double your money and after 10 years it will go up times four. She said if you don’t get the money, you are guaranteed a plot of land.”

What could go wrong?

Nahid signed up Mohammed and Sajeeda and 15 other relatives who lived in the slum. For 54 months straight, Sajeeda scraped together 550 rupees each month and deposited it with Pearls, a total of more than $600. It was getting towards the point of five years, where $600 would become $1200.

Then one day Nahid came to tell them to halt the payments — she’d heard things weren’t going too well for Pearls and thought it best that they wait until it picked up before investing more. It was something to do with the stockmarket, things they didn’t understand. And so they waited for the turnaround.

It never picked up.

Indian authorities have suspected­ for years that Pearls has been running a Ponzi scam and its regulatory body, the Security Exchange­ Board of India, has been fighting it through the courts since before 2003.

As far back as 1998, the Delhi High Court placed restrictions on a number of companies, including Pearls, conducting “collective investm­ent schemes”. Pearls then launched a series of legal challenges against that ruling.

While these legal wranglings played out, Pearls grew from a company with fewer than 2000 investors in 1999 to more than 50 million by 2013. It did so by having hundreds of thousands of agents, such as Mohammed’s cousin Nahid, out in the poor communities of India, signing up their friends and relatives and collectin­g commissions of between­ 12 and 40 per cent.

Last month, the Supreme Court finally forced Pearls to shut down and Bhangoo and other executives were arrested by the Central­ Bureau of Investigation, charged with fraud and jailed.

A committee headed by India’s former chief justice RM Lodha has been formed to try to work out how the money can be paid back.

The bigger questions, says India­n writer Meetu Jain in Outlook magazine this week, are “How was such a huge scam pulled off over 20 years? Who were the politicians who helped lubricate this group? Why did the courts tarry for a decade?”

He says it speaks of a “shocking institutional failure”.

The answer as to why this was allowed to run on for so long can be found in the profile of the invest­ors. They were poor, largely illiterate and without legal representation. They had no clout.

As Meetu writes, “the Aussies were also taken, it seems”. And it seems we were. In 2010, at a press conference announcing his ­association with Pearls, Lee said: “As a brand ambassador, I want to be associated with the best. This association has not happene­d overnight, and I have made sure that I am aligned with a company which is the best. I feel every person is being touched by Pearls around the world.”

Lee was still endorsing Pearls on his website this week. The Weekend Australian sent his management an email asking how much he was paid and if the money was found to be proceeds of a crime, whether he would give it back. There was no response.

Lee’s speech at the press conference implied he had done his due diligence, but that doesn’t appear­ to have been enough to stop him being duped as well. Checks by Australian authorities don’t appear to have revealed the truth behind the scheme, either.

If they had, they’d have come across the long-running legal battle­s between SEBI and Pearls, which should have raised a red flag and prompted them to at least contact the corporate regulator.

Lee’s manager from the time, Neil Maxwell, told The Weekend Australian Lee was introduced to Pearls management at a function held at the Australian high commission in New Delhi. Maxwell said the introduction was through Austrade officials, who he said had facilitated the deal for Bhangoo to buy the Sheraton Mirage in 2009.

In October 2010, in Delhi, as part of a trade mission and Brisbane’s 2018 Commonwealth Games bid, former Queensland premier Bligh and then Australian­ high commissioner to India, Peter Varghese, met Pearls Group directors Gurpartap Singh and Sukhwinder Singh and Rikha­b Jai, along with “Pearls Australia joint managing directors” Paul Brinsmead and Peter Madrers.

The meeting was “designed to encourage the Pearls Group to increa­se its investment portfolio in Queensland”.

The records show Bligh dealt directly with reque­sts from members of the Bhangoo family to obtain “state-sponsored” visas. A number of Bhangoo’s relatives are now living in Australia. His daughter, Barinder Kaur, and her husband live in an opulent canal-front property in the Gold Coast suburb of Hope Island, bought for $4.95m in 2011 by Pearls Infrastructure Projects — the company Lee was spruiking on Indian ­television.

The Australian government connections where what first lured Pearls to Australia. In March 2009, the 14 companies in the Resort Corp property developme­nt group, which had been developing large landholdings in the Tweed Shire in northern NSW, collapsed owing $300m. The men behind it, Brinsmead and Madrers, were looking for their next gig.

A friend of theirs had recently moved to India with Austrade. He met Bhangoo and saw an opportunity for Brinsmead and Madrers to secure large sums of money to get up and running again.

In September 2009, before Resort­ Corp’s administrators had even published their first set of accoun­ts for the failed group, Brinsmead and Madrers, Bhangoo, Bhangoo’s son Harvinder Singh Bhangoo and son-in-law Gurpartap Singh were signing forms, all becoming founding director­s of Pearls Australasia.

The following months they all became directors of Mirage 1 — the holding company for their newly purchased Sheraton Mirage­. At least six different Australian­ companies in the Pearls Australasia Group were establish­ed, with Bhangoo’s daugh­ter and her husband, Hasatinder Singh Hayer, also signing up as group directors.

 In 2014, as the investigations in India into Pearls executives were gathering pace, Pearls Australasia Mirage 1 changed its name to Mii­Resorts Group 1, or the “MiiGroup” and all references to Pearls, Bhangoo and India were removed.

Regardless, Pearls Group India remains the owner of the luxurious five-star Gold Coast resort.

  The issue now is what happens to the hotel and whether the tens of millions of dollars “invested” in the Sheraton Mirage will be recovered for the benefit of Mohammed and Sajeeda Khadir and the many millions of others like them?

Given that the Pearls fraud occurre­d in India, authorities in Australia are unlikely to act until they receive a formal request from Indian authorities, such as the Central Bureau of Investigation. That has not yet happened.

Typically, this would involve a request from India for the Australian Federal Police to freeze the asset­s of MiiResorts Group 1 and the assets of all other arms of the group that may house Pearls Group India assets.

Such action generally requires the complainant government authority to provide evidence of suspected wrongdoing, which should be relatively simple given the jailing of Bhangoo and three associates, and more than a decade of legal stoushes.

Historically, when valid freezing requests are made, the AFP has shown a desire to act swiftly.

 Unsurprisingly, Brinsmead is understood to feel that the MiiGroup assets should remain in Australia and is believed to be moving to launch legal action to prevent their return to India, which should encourage Indian authorities to move quickly.

Another Queensland property developer to become involved with Pearls Australasia is Metro Property Group, fronted by its prominent head David Devine. He said Pearls Australasia had provided funding for and acted as a joint-venture partner in four of Metro Property Group’s first developmen­ts, three Brisbane high-rises and a Melbourne house and land development.  

Each day, Mohammed Khadir catches a train across the city to his work at the Mumbai branch of the All India Bank Employees­ Federation. The office is above a streetside market in Mumbai’s banking and courts district.

His boss, Vishwas Utagi, has run the local branch of the federation for many years. He was moved by Mohammed’s plight, and the plight of tens of thousands of others, and so decided to form the All India PACL (Pearls) Investor Association to fight for the rights of the investors.

The association has been holding a series of rallies, which began last August, for Pearls investors around the state of Maharashtra. They have held seven meetings and at each one they’ve had betwee­n 5000 and 10,000 people attend. The association now has 50,000 members on its books.

Utagi says authorities in India and Australia must do everything they can to get the money back. “These people are the poorest of the poor,” he says.

“They now don’t deserve this. There are so many sad stories. At one of the rallies we heard from the peasantry; marginal farmers who have been drought-stricken for two years without a monsoon. Some had invested in Pearls and then committed suicide.

“We have heard so many storie­s of people who invested with Pearls committing suicide. It is an alarming situation.”

He says he will not stop until he claws back the money.

After the interview with Utagi, we sit with Mohammed and drink lemon tea. He says: “Do you think all this will help? Will we get our money back?” We tell him that we hope so. Hope is all he has.