In today’s Finshots, we explain why a Dubai-based ‘businessman’ is in the eye of a stock market storm.

The Story

Penny stocks (ones trading under ₹10 a share) and small-cap stocks are being punished. And there’s one name cropping up as a probable cause for a part of this mayhem — Hari Shankar Tibrewala.

But who’s this shadowy figure, you wonder?

Well, does the name Mahadev betting scam ring a bell?

No?

Okay. The details are a little murky, but we’ve tried to piece everything together. So let’s take it from the top.

It all started in the mid-2010s in a town in Chhattisgarh. A young man named Saurabh Chandrakar had decided to set up a juice stall. He called it Mahadev Juice Centre and he had his fingers crossed for this to be successful. The problem was that he’d not had much luck with previous business ideas and to make things worse, Chandrakar had already racked up a few lakhs in losses due to an ugly gambling habit.

That’s when he bumped into a fellow gambler and businessman named Ravi Uppal. And maybe they decided that they couldn’t keep losing money to these betting schemes. So they decided it made sense for them to be the ‘house’. Together the two of them decided to set up a betting website.

And in 2017, they set up their gambling app named after the juice centre — Mahadev Book. They wanted people to place live bets on sporting events such as cricket and football.

And since they really didn’t have any experience creating something that would scale, as per some reports, they managed to get an introduction to the folks who already ran a pretty successful betting app called Reddy Anna.

Apparently, that technical know-how changed their fortunes.

By 2019, Uppal and Chandrakar migrated to Dubai and their families followed soon after. They began advertising to lure in the millions of users and soon began raking in crores of rupees a day. They set up over 10,000 bank accounts across the world to receive all this money.

Either way, when Chandrakar decided to flaunt his newfound wealth by splashing ₹200 crores on an opulent wedding in 2023, India’s Enforcement Directorate woke up.

“Who on earth was this guy who suddenly had Bollywood A-listers attending his wedding in Dubai?”, they thought.

So they investigated. They found that everything about the app and the money it made was illegal. And then worked with the UAE law enforcement to arrest Chandrakar and Uppal.

Anyway, that’s the short version of this scam that’s allegedly worth a mammoth ₹6,000 crores!

Okay. But how does Hari Shankar Tibrewala fit into all this, you ask?

Ah, so Tibrewala is a Dubai-based ‘businessman’ who allegedly teamed up with Chandrakar and Uppal. He ran a variant of the Mahadev Book app called 'Skyexchange'.

And his modus operandi was pretty simple. He took money from customers and then handed it over to a clandestine network of money operators. These folks would find ways to park it surreptitiously into bank accounts. And these bank accounts would be controlled by Indian or foreign entities.

What would they do with this money?

Well, as per the Enforcement Directorate, the money eventually wound up in the Indian stock markets — a whopping ₹1,100 crores worth of it. And most of it would be in the stocks of smaller companies such as Tiger Logistics, Toyam Sports, and Gogia Capital Services. In fact, around 30 listed stocks are suspected to have investments from one of Tibrewala’s many dummy companies.

Now the reason for choosing smaller companies was simple. Hardly anyone would trade in these shares. And that meant it would be easier to manipulate the prices. He could quite easily play the pump-and-dump game — drive up the prices, fool retail investors into thinking the stock is the next big thing and then exit it at a hefty profit.

And since this dubious practice worried the folks at the ED, they jumped right in and have frozen shares worth a whopping ₹1,100 crores in demat accounts linked to Tibrewala.

But wait…does it mean that all 30 stocks are being manipulated, you ask?

Probably not. Anyone can buy stocks from the open market, right? And it’s not necessary that Tibrewala has a direct connection with the promoters of the companies. In fact, at least 6 of these companies have issued public clarifications saying that they have no direct connection to Tibrewala.

But here’s the thing. It may not be enough to assuage investor fears that their beloved stock is being manipulated.

Take, for instance, a solar utility company called Gensol Engineering. The Morning Context points out that one of Tibrewala’s companies Zenith Multi Trading DMCC has a stake in the firm. And for a period after Zenith took its spot as an investor, the stock had a meteoric rise.

If you ask Gensol, they’ll say there’s no connection. Their official statement actually says:

“Zenith, a passive shareholder since September 2022, holds less than 1.5% in Gensol and holds neither decision-making rights nor any involvement in the business and operational strategies of the company.”

Now that might be true. But you don’t need to have decision-making rights to drive up an illiquid stock’s price, no? And that could mean the Tibrewala connection could still optically look quite bad for Gensol.

In fact, companies with links to Tibrewala have all fallen by 10–30% in just this month. And that’s why people are laying blame on Tibrewala’s doorstep for the recent rout.

Until then…

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PS: Of course, it’s foolish to attribute a broader market crash to just Tibrewala. There’s a whole host of things at play here — SEBI’s warning on market manipulation, the regulator asking mutual funds to be cognizant of the risks in smaller companies, and even some global stock market weakness. But we just wanted to talk about the Dubai-based operator’s connection to certain Indian stocks.