Inside dabba trading: How fake stock markets fuel a shadow economy

Dabba trading racketeers are thinking completely out of the box No longer is it a crude operation in which money changes hands in some backroom recent Enforcement Directorate ED investigations have blown the lid off a panIndia dabba trading and online betting syndicate functioning in a technologically sophisticated ecosystem involving fake trading platforms betting applications encrypted communication and crossborder money launderingOn December 22 the ED filed a prosecution complaint before the PMLA court in Indore against a syndicate operating across Mumbai Ahmedabad Chennai Indore and Dubai A betting FIR registered at NM Joshi Marg police station in Mumbai 2021 proved crucial in uncovering this hightech racket that mirrors the stock market mdash but operates entirely outside the lawldquoThe investigation in the Indore case revealed that the owner of multiple illegal trading and betting platforms had initially acquired administrative control of an underground betting platform under a profitsharing arrangementrdquo said an officer from the ED ldquoThese administrative rights were later transferred to another operator with profits being split between them The probe further found that a whitelabel betting platform was developed and supplied to run illegal betting websites while cash transfers and payments were routed through hawala channelsrdquoThe proceeds of crime are then parked in land gold luxury watches jewellery and cryptocurrency holdings Or they are transferred to Dubai via hawala With technology lowering barriers and enforcement playing catchup authorities warn that dabba trading poses not just a financial risk to individuals but also a systemic threat to market integrity The EDrsquos probe aims to trace money trails identify beneficiaries and dismantle the infrastructure that allows fake markets to flourish alongside Indiarsquos regulated financial systemFrom diaries to appsInvestigators pointed out that dabba trading has continuously adapted to evade law enforcement Earlier trades were recorded manually in notebooks or diaries This later shifted to laptops and spreadsheets Today syndicates allegedly operate through dedicated applications and trading interfaces that mimic legitimate platformsThe ED has claimed that in the current case manipulated MT5 servers trading platforms were used to generate false trading outcomes This meant the trading application was sophisticated enough to look like the real thingCash and valuables seized during raids in MumbaiClients were allegedly shown simulated trades and fabricated profits on platforms such as ldquoV Moneyrdquo and ldquo8Stock Heightrdquo even though these platforms had no linkage to recognised stock exchanges The trading outcomes were controlled by the operators ensuring that losses and gains could be engineeredAccess to such applications is tightly controlled IDs and passwords are not shared freely and new users are often introduced through guarantors Once logged in a person can allegedly carry out dabba trading from anywhere in the world while money is settled through cash hawala routes or in some cases cryptocurrencyWhat is dabba tradingIt refers to illegal trading in shares and stock market indices where transactions are not routed through recognised stock exchanges such as the NSE or BSE Instead bets are placed on the rise or fall of share prices with settlements done in cash or through informal channels These transactions are recorded privately in an operatorrsquos ledger in a closed loop or ldquoboxrdquo mdash hence the moniker With transactions of thousands of crores the tax loss to the exchequer is enormousBetting and launderingParallel to dabba trading the same racketeers are also running illegal betting platforms as a major revenue stream In the EDrsquos case betting websites such as LotusBook247 and 11Starss are allegedly operated through anonymous user accounts encrypted messaging apps and cashbased settlements Investigators claim that proceeds from both dabba trading and betting were layered through mule bank accounts and routed to offshore entities including Dubaibased structuresMumbai cases underline the scale of conMumbai has repeatedly surfaced as a major hub for dabba trading In 2021 Crime Branch Unit 7 busted a racket operating out of the Parksite area in Ghatkopar where multiple accused were found betting on NSE and BSE indices Data analysed by exchange officials showed turnovers running into several thousand crores within a few monthsMore recently police uncovered appbased dabba trading operations in areas such as Kandivli where trading was conducted through unlicensed applications like ldquoMoodirdquo entirely in cash In one such case investigators found transactions worth over Rs 4600 crore and alleged tax evasion of nearly Rs 2 croreModus operandiNishant Salunkhe cyber forensic expertgtgt ldquoThe syndicate operates in a closed loop with no live connectivity to recognised stock exchanges But the technologically advanced system creates an illusion of legitimate market activitygtgt Manipulated MT5 server configurations are used to override core parameters such as price feeds order execution logic slippage and profitloss calculations allowing operators to predecide trade outcomesgtgt Fake trading apps like V Money and 8 Stock Height functioned as visual simulators not trading platforms displaying scripted profits to psychologically condition victims into investing moregtgt Funds are laundered through mule accounts crypto wallets offshore entities and layered crossborder transfers obscuring the audit trailgtgt Because the entire system can be manipulated there is a hidden risk Backend dashboards allow realtime manual control to inflate balances delay withdrawals or trigger artificial losses once higher dabba trading deposits are made Withdrawal blocks are enforced through algorithmic flags followed by demands for ldquounlock feesrdquo taxes or loan repayments mdash classic extraction stages of financial fraudrdquoMoney laundromatDhwani has Rs 500 in white money and Rs 500 in black moneygtgt Dhwani buys XYZ stocks for Rs 500 in white money on an official stock exchange NSEBSEgtgt At the same time she sells the XYZ stocks on dabba trading black money for Rs 500gtgt If the stock price rises Dhwani will make a profit on the NSEBSE purchase On the other hand Dhwanirsquos sale will technically make a loss selling at lower than market rate But in dabba trading even this loss results in that Rs 500 black money being converted to white money Itrsquos a winwin scenariogtgt If the stock price falls Dhwani will make a loss in the official transaction buying at higher price than market rate but that loss is offset by the black money profit parked in dabba tradesRs 404 crAlleged proceeds of crime as per ED60 kgAmount of gold and silver seizedRs 34 crValue of assets attached in the case