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May 01, 2013 at 06:48pm IST

Odisha: Investors duped of Rs 20,000 cr by fraudulent firms, authorities admit lapse

Bhubaneswar: A scam as big as the chit fund fraud in West Bengal has been exposed, but this time it is in Odisha. A CNN-IBN exclusive shows how fraudulent investment companies are duping investors in the state. Investors have been swindled off nearly Rs 20,000 crore by 40 finance companies in Odisha.

Seashore Group, one of the companies being probed by Odisha police, has duped over 80,000 investors and collected over Rs 600 crore. The company offered investors 24 per cent interest per annum. Seashore Chairman Prasant Dash did not respond to CNN-IBN's request for a reaction.

When he retired at 60 in 2012, school teacher Basudev Mohapatra invested most of his retirement benefits of Rs 7 lakh with the Seashore Group that promised him a whopping 24 per cent interest annually for 6 years before returning his money. After a few months the interest payments stopped. The company even refused to return the invested amount. Basudev realised he had been duped.

"The company and its agent convinced us that if you keep your money in banks you will get only 8 per cent interest, but if you deposit in Seashore you will get 24 per cent. Since the company was running for past several years in our area, we thought the government must have given it all due permission to operate," Mohapatra said.

"The crime branch authorities are hand in glove with Seashore and have deliberately delayed the case in legal tangle and are not taking action against Prasant Das. We want that that Seashore Chairman Prasant Das should be arrested immediately," Sanjay Kumar Mahapatra, another duped investor said.

Three years ago, a firm named Fine Indisales had also swindled over 2 lakh investors of Rs 576 crores. 40 such fraudulent companies have been identified in Odisha and the amount lost by investors has been estimated to be Rs 20,000 crores.

"The dilemma that we face during investigation is that the investors who have been duped are not very forthcoming to lodge complaints. They are under the false impression that at some point of time they will get their money and if police take action then their money would be lost. What we need is to take more proactive measures," BK Sharma, Add DG, Crime Branch, said.

The Reserve Bank of India (RBI) lists 17 non-banking financial companies registered in Odisha and none are permitted to raise deposits from investors. But fraudulent companies attract depositors posing as mutual fund firms and even as real estate businesses.

With regulatory bodies like the RBI, SEBI, the state finance department and the state police failing to act together, the fraudsters get away with hundreds of crores. "Multiple regulators and regulatory gap is perhaps giving opportunity to such fraudulent financial establishments to dupe investors. Realizing this problem, we have got a law enacted by the state called Protection of Interest of depositors Act, and it requires the assent of the President and once we get that the law will be put into operation," said Jugal Kishore Mohapatra, Finance Secretary, Odisha, said.

The action initiated by the authorities seems too little too late and what is worse is that many such unscrupulous financial institutions continue to thrive under the very nose of the authorities.

A decade ago Prasant Dash was an insurance agent. Arrested in 2003 for cheating his clients, he had then spent 22 days in jail. He set up Seashore Group in 2005, claiming to have interests in insurance, healthcare, real estate and media.

Family members were made company directors. In 2010 the RBI rejected Seashore's application to register as a non-banking financial Institution. But the Crime Branch says Dash was already illegally luring depositors and was soon collecting over Rs 600 crores. Such is his clout, inspite of the allegations of fraud, Dash almost became the banking correspondence for the Odisha government's cash transfer scheme for the poor.

"The nodal bank of the state which is UCO bank had invited for bidding to become banking correspondence and Seashore had participated. But we assure that even if Seashore gets selected by the bank, we would not partner them in our schemes," Jugal Kishore said.

Some suggest Dash had political patronage from top BJD leaders and only after a fallout was action initiated against Dash -but it is an allegation the BJD denies. "All these action are after the fall out between the chief minister and the person who was advising him. The government was in the know of it but was keeping silent till the bubble bust," said KV Singhdeo, BJP state president.

"This action against seashore has nothing to do with the internal affair of our party. We will spare no one whoever he may be," Prasanna Acharya, Finance Minister, Odisha, said. But the Odisha crime branch is moving slow. It has seized 180 Seashore bank accounts but the amount seized is just Rs 1.5 crore. They are yet to trace the other Rs 600 crore while Dash remains a free man.

While awareness among investors is the key to prevent such fraudulent companies from flourishing, hardly any steps have been taken by the regulatory authorities in this regard. As a result vulnerable states like Odisha continue to become favourite breeding grounds for such fraudulent companies.

SEBI, meanwhile, suggested instituting a single regulator body in the country to tackle with such companies. "In the interim, we have suggested to the government that certain sections of the SEBI act should be amended. We have made the suggestions to the government. My belief is the government will look into them and I think we should wait for the changes to take place," said SEBI Chairman UK Sinha.