Your Broker As A Cheat (Part 11)

There is a joke…

Two stockbrokers are in a bank, when, suddenly, armed robbers burst in, waving guns and yelling for everyone to freeze.

While several of the robbers take the money from the tellers, others line the customers, including the two stockbrokers, up against a wall, and proceed to take their wallets, watches, and other valuables.

While this is going on, one of the stockbrokers jams something into the other stockbroker's hand. Without looking down, the second stockbroker whispers: "What is this?"

 The first stockbroker: "It's the $100 I owe you!"

Today I would like to write about one of the worst sub-broker I have ever seen.  This lady is Satan roaming as a human on earth.

The con began with the Global Financial Crises of 2008.  One of India’s top broker went belly up during the last quarter of 2008.  The broker called up one of India’s Top Businessman and the businessman willingly put the funds to save the broker.  The broker now had a financial obligation right?

Wrong.  The Broker’s sub-brokers and clients had the financial obligation.  The target set was to generate as much brokerage as possible for the broker so that the businessperson could be paid off.

The sub-broker, or Satan as I refer to, was given an agenda in the following stocks

Mox Limited
Resurgere Mines and Minerals
Future Capital Holdings Limited
Reliance InfoComm
Reliance Capital

A pretentious marketing campaign was put out glorifying the above junk.  The sub-broker ensured that her clients pile up millions of these shares.  The result was predictable – 95% reduction in portfolio value.  

Below are statements that the sub-broker used to enhance her credibility about the junk investments, which were bound to deplete share holder wealth:

-“ I just had a word with a top executive at Reliance/Motilal/Similar Big Name etc.  This is his stock of the year.”

-“I have distilled many stocks so as to finalize on these stocks.  These are the most undervalued and fundamentally strong stocks.”

-“A top Mumbai broker is holding a position in this stock.  He needs an exit price and so is planning to jockey this stock up so as to cover his losses and ensure gain for the pain he bore.”

The truth of the matter was that the Broker wanted to offload his positions in these stocks.  Readers of this blog should check the charts of these above stocks and you will see what SEBI will never see – FRAUD.

We, overall, underestimate a sub-broker’s need for continuous brokerage.  This is the one and only reason why these people end up recommending junk.

As prudent investors, we must ask our brokers and sub-brokers the wrong questions and see if you can see greed in their eyes.  And greed you will see….

Happy Investing!

Disclaimer – I don’t own any of the junk stocks mentioned above.

© Nitesh Kotecha