Ponzi schemes not in our regulatory ambit: SEBI to apex court

Krishnadas Rajagopal New Delhi | Updated on January 17, 2018 Published on August 08, 2016

A file picture of depositors of Saradha Group schemes protesting in Kolkata BUSINESS LINE   -  Business Line

Market regulator says States are responsible for protecting investors

Market regulator Securities and Exchange Board of India (SEBI) denied any regulatory purview over ponzi schemes, squarely placing the responsibility of protecting innocent investors on the State governments.

SEBI was responding to the Supreme Court’s demand as to what the government and the market regulator were doing to check the “menace” of schemes running across the country in various forms which rob the poor and small investors of their hard-earned money.

The issue was brought before a Bench led by Chief Justice of India TS Thakur in a PIL by NGO Humanity Salt Lake, seeking the court’s intervention to direct the government to devise a long-term plan to end unauthorised and illegal deposit schemes, collective investment schemes (CIS), prosecute fraudsters and recover the investors’ money.

“Ponzi schemes do not fall under the regulatory purview of the SEBI. The same is banned under Prize Chit and Money Circulation (Banning) Act, 1978 and the State government concerned is the enforcement agency. Though it is a Central Act, the respective State Governments are the enforcement agency of this law,” SEBI submitted in an affidavit perused by the Bench on Monday.

The regulator, however, shares its experience that an overwhelming majority of complaints received from the public about unauthorised money mobilisation related to ponzi schemes.

“Majority of of money mobilised are in the nature of activities like prize chits, money circulation schemes, multi-level marketing/pyramid schemes and ponzi schemes,” the affidavit submitted.

But SEBI expressed its helplessness in regulating “banned activities” unless made aware of their existence. If informed, the regulator would stop these activities. Besides, it said, CIS is not a banned activity. But a CIS is authorised if it is registered with SEBI or gets prior permission from the regulator. If not, such schemes are not allowed to operate.

Under the Securities Laws (Amendment) Act, 2014, any pooling of funds under any schemes or arrangement having an investment corpus of more than ₹100 crore or more, is to be regulated by SEBI unless the scheme has been “specifically exempted” by a legislation, a separate affidavit filed by the Ministry of Finance in the same case said.

The Ministry said the 2014 Act has also clothed SEBI with powers of arrest and attachment of the properties of violators.

In the past three years, SEBI has passed orders against 76 entities for carrying out unregistered CIS activities and 223 entities for issuing securities without following due process (Deemed Public Issue or DPI).

It submitted that as on June 30, 2016, SEBI has initiated 60 recovery proceedings against defaulters in CIS and DPI cases, attached properties in 199 cases and recovered ₹215.5 crore in these cases.

It said it has spent over ₹73 crore on public awareness activities against unregistered CIS and unrealistic returns.

Published on August 08, 2016

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