Mahadev Betting App Scandal & Small-Cap Crash: Is There a Link?

Tanushree Jaiswal Tanushree Jaiswal 18th March 2024 - 06:16 pm
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Last Monday, the Indian Stock Market faced significant selling pressure, with concerns emerging about a possible bubble in the small- and mid-cap segments and their high valuations. The BSE Sensex and NSE Nifty experienced approximately 0.7-0.8 per cent declines. However, the drop was more pronounced in the case of BSE SmallCap, which plummeted by 2.01 per cent. This sharp decline in small-cap stocks is speculated to be influenced by the actions of a single individual - Hari Shankar Tibrewala.

Well, do you remember the infamous Mahadev Betting Scam?

Let’s rewind a bit.

A young man named Saurabh Chandrakar opened a juice stall named Mahadev Juice Centre. Chandrakar, who had incurred significant losses due to gambling, joined forces with Ravi Uppal, another gambler and businessman.

Together, they decided to become the 'house' by creating a betting website. Thus, in 2017, the Mahadev Book gambling app was born, allowing people to place live bets on sports events like cricket and football.

However, lacking experience in scaling such ventures, they sought guidance from the operators of a successful betting app, Reddy Anna. With newfound technical expertise, their fortunes soared. By 2019, they had moved to Dubai, where they amassed crores of rupees daily through Mahadev Book, operating over 10,000 bank accounts worldwide.

Their extravagant lifestyle caught the attention of India's Enforcement Directorate, leading to an investigation. It was revealed that Mahadev Book was illegal, and in 2023, Chandrakar and Uppal were arrested in Dubai.

But here's where Hari Shankar Tibrewala enters the scene. Tibrewala, based in Dubai, allegedly collaborated with Chandrakar and Uppal, running a similar app called 'Skyexchange'. His method was simple: he funneled money from customers to a network of operators who surreptitiously parked it in bank accounts controlled by Indian or foreign entities.

And where did this money end up? According to the Enforcement Directorate, around ₹1,100 crores found its way into the Indian stock market. Most of it landed in shares of smaller companies like Tiger Logistics, Toyam Sports, and Gogia Capital Services—about 30 listed stocks suspected of having investments from Tibrewala's dummy companies.
Tibrewala's strategy was clear. By investing in these illiquid stocks, he could manipulate their prices, engaging in pump-and-dump schemes to profit handsomely. Concerned about this dubious practice, the Enforcement Directorate froze shares worth ₹1,100 crores in demat accounts linked to Tibrewala.

Shares of several companies, where Dubai-based hawala operator Hari Shankar Tibrewala, holds stakes through the foreign portfolio investor (FPI) route tooka hit on Indian stock exchanges. Cellecor Gadgets Ltd, with Tano Investments Opportunities Fund holding 13%, crashed by 20% to Rs190.80. Tibrewala allegedly used two FPIs, Zemith Multi Trading DMCC and Tano Investment, to hold stakes in Indian companies, affecting stocks like JTL Industries, Balu Forge, and Sigachi Industries.

The Directorate of Enforcement (ED), in its recent search operations targeting money laundering networks associated with Mahadev Online Book, unearthed Tibrewala's involvement. Tibrewala, originally from Kolkata but currently residing in Dubai, is alleged to be a significant hawala operator who partnered with the promoters of Mahadev Online Book. 

ED's investigations revealed that Tibrewala owned and operated an illegal betting website called Skyexchange. Through his Dubai-based entities, he purportedly invested betting proceeds in the Indian stock market via the FPI route. The ED has frozen security holdings worth Rs580.78 crore in entities beneficially owned by Tibrewala under the Prevention of Money Laundering Act (PMLA).

"The searches in Kolkata also revealed that Mr Tibrewala was also involved in the manipulation of the stock market in collusion with the promoters of the listed companies. Mr Tibrewala, using his immense capital, used to create temporary fluctuations in share prices, driving them upwards, and then withdraw funds once the prices reached a desirable level," said ED.

Reports indicate that the ED is gathering statements from promoters of listed companies suspected of using Tibrewala's assistance to manipulate stock prices. Additionally, the ED has apprehended two associates of the Mahadev group responsible for its operations in India. According to sources cited in a Times of India report, stockbrokers and intermediaries associated with Tibrewala and company promoters used his funds to manipulate share prices, resulting in significant profits for both parties but causing losses to small investors.

In a recent release, the ED revealed that Tibrewala used Suraj Chokhani to launder and conceal proceeds of crime through share investments for Indian companies. Investigations indicated that Indian companies under Tibrewala's associates held securities worth Rs580 crore in stock portfolios, while foreign entities held securities worth Rs606 crore as of February 29, 2024.

Furthermore, Tibrewala was allegedly involved in manipulating the stock market in collusion with the promoters of listed companies. Using his significant capital, Tibrewala purportedly created temporary fluctuations in share prices, driving them upwards before withdrawing funds once prices reached desirable levels.

Stocks like Gensol Engineering Ltd, with Zenith DMCC owning 1.64% as of December 31, 2023, closed Monday down by 7.67% at Rs935. Trading in Servotech Power Systems Ltd was halted at the lower end of the 5% intra-day circuit filter at Rs82.10 due to selling pressure. Pritika Auto Industries Ltd fell nearly 2% to Rs33.75, while Balu Forge Industries shares dropped by 3.79% to close at Rs202.

Zenith DMCC holds stakes in Servotech Power Systems (4.7%), Pritika Auto (1.57%), and Balu Forge (1.1%). Tano Investment, the sole foreign institutional investor (FII), holds a 4.87% stake in BLB Securities, which declined by 2% to Rs44.91. Other affected stocks include Manoj Vaibhav Gems & Jewellers Ltd, HMA Agro Industries, Tiger Logistics (India) Ltd, and Krishival Foods Ltd, all witnessing significant declines.

ED's investigation also shed light on Mahadev Online Book's illegal operations, run from Dubai, franchising 'panel/branches' to associates on a 70%-30% profit ratio. The main promoters are also partners or promoters in multiple online betting books like 'Reddy Anna' and 'Fairplay'. Large-scale hawala operations were conducted to divert betting proceeds to offshore accounts, according to the ED.

In earlier actions, ED seized movable properties worth Rs572.41 crore and issued provisional attachment orders worth Rs142.86 crore under the PMLA. So far, nine accused have been apprehended, with the total attachment and freezing in the case amounting to Rs1,296.05 crore.

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