Millennium Post

Over 500 entities running collective investment schemes; 1 registered with Sebi

More than 500 entities and their promoters are feared to be running thousands of illicit collective investment schemes (CIS) across the country, although just one is registered with the market regulator Sebi for this kind of business and that is also yet to launch a scheme.

Under a collective investment scheme, which is regulated by Sebi, the contributions made by the investors are pooled and utilised with a view to receive profits, income, produce or property, and is managed on behalf of the investors by its operator.

Since investors do not have day to day control over the management and operation of such schemes, Sebi follows a strict set of rules to regulate them and to grant registration for such businesses.

However, an ongoing probe into such schemes, which was triggered by Saradha scam in West Bengal, has come across thousands of such businesses being operated across the country without any approval from Sebi, sources said.

The regulators have zeroed in on about 500 entities and their promoters and directors, who might be running numerous CIS operations under different names. More than one lakh complaints are said to be pending against these entities, they added.

The operators of such schemes typically set up a new CIS business under a new name after fleecing the investors under the earlier scheme. Most of them are doing businesses that are in the nature of ponzi schemes, where unusually high returns are promised and the old investors are paid from the money collected from new investors. However, once the new investors stop coming in, the schemes go bust and the operators run away to start some new scheme, sources said.

These schemes are being run in the names of businesses linked to sectors like real estate, hospitality, art, agriculture and even education, sources said, while pointing out at West Bengal and other states in the Eastern and North-Eastern region as among the most fertile grounds for such schemes. While Sebi has been mandated to regulate the CIS operations, it has been complaining about lack of powers to handle this menace and has sought greater authority to address the gaps.

The government is said to be seriously considering amendments to the Sebi Act and other regulations to allow Sebi greater powers to tackle all kinds of money collection schemes as there are many exceptions in the existing CIS regulations.

Sebi has said that only one entity, Gujarat-based Gift Collective Investment Management Company, is registered with it for CIS operations, and that too has not yet launched
any scheme.


An inter-ministerial panel will meet on Thursday this week to deliberate on ways to strengthen supervision of financial sector to effectively curb fraudulent money pooling activities.

The meeting of the group has been scheduled against the backdrop Kolkata-based Saradha Group allegedly cheating investors through fraudulent money pooling scheme.

The group is headed by Department of Financial Services' Additional Secretary and comprise Joint Secretary level officers from Department of Economic Affairs, Department of Revenue, Corporate Affairs Ministry, RBI and SEBI.

'The Group (inter-ministerial panel) is expected to strengthen the existing coordination mechanisms for regulation and supervision of financial sector,' the Finance Ministry had said.

The inter-ministerial panel has been set up to ensure 'proper enforcement of regulatory framework for multi-level marketing companies, non-banking finance companies and companies running collective investment schemes'.

Many entities have registered themselves as chit funds but are found to be raising money
illegally through fraudulent schemes or ponzi schemes by promising high returns.

Meanwhile, Direct Selling Distributors Welfare Association (DSDWA) has demanded setting up of a regulatory authority' to protect interests of consumers and distributors selling products of FMCG, Textiles and Health and Wellness.

'Distributors businesses have adversely affected after the (West Bengal) scam and most importantly consumers faith amongst distributors have also shaken,' DSDWA President Surinder Vats said in a statement.

He said there was need for stringent laws to plug possibilities of such scams in future on the lines of tough laws framed by countries like Australia, Malaysia, Singapore and Canada.
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