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WB, Northeast a hotbed of investment frauds, NRIs major target: probe

Press Trust of India
Apr 26, 2013 at 01:54pm IST

New Delhi: Amid a raging controversy over alleged cheating of gullible investors by Saradha group, the regulators have found that West Bengal and Northeastern states have become a hotbed of such frauds and NRIs from these regions account for a large chunk of defrauded people. While the Centre has announced an SFIO (Serious Fraud Investigation Office) probe into the affairs of Kolkata-based Saradha group and other such entities across the country, market regulator Sebi is also investigating illegal money-pooling activities of many such groups.

While the capital markets regulator is focussing its probe on violation of Collective Investment Scheme (CIS) norms by these companies, it has prima facie come across various instances of funds being channelled to and from other countries and these cases, after further probe, could be referred to other agencies like the Enforcement Directorate, RBI and other agencies, a senior official said. The Enforcement Directorate and the Income Tax department have already begun their own respective investigations into the matter and assistance could be sought from RBI and other regulatory and enforcement agencies as well, he added.

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The preliminary probe into Saradha group and other continuing investigations into various other entities also shows that West Bengal and Northeastern states like Assam and Tripura have become the favourite hunting grounds of the companies engaged in illegal money collection activities. Besides, a large number of NRIs having origins in these states are understood to have been defrauded by many such companies, including Saradha group.

WB, NE a hotbed of investment frauds: probe

The regulators have found that almost none of the entities accused are actually registered as or running chit fund companies.

The regulators have found that almost none of the entities alleged to have defrauded the gullible investors are actually registered as or running chit fund companies, although their investment schemes are commonly known as 'chit funds' in the region.

Capital market regulator Sebi has already passed an order against one group entity, Saradha Realty India, asking it to wind up all collective investment schemes and refund the money collected from investors. Besides, Sebi is also probing at least ten other Saradha entities for raising funds without the regulator's approval. The Income Tax Department would also soon start its investigations into the activities of this group.

The decision to order a probe came after a meeting taken by the Corporate Affairs Minister Sachin Pilot of the top ministry officials yesterday, where activities of Saradha group and other money-pooling entities were discussed. Besides Saradha group, the meeting also deliberated on steps required to check suspected fraudulent activities of other chit fund companies, sources said.

In the past, the Ministry had received complaints of alleged ponzi schemes at 73 companies of about a dozen different groups in West Bengal. These complaints, which also include those against Saradha group entities, were referred to concerned agencies and departments by the Ministry. Saradha group has more than 100 firms registered with the RoC (Registrar of Companies) for businesses across sectors including real estate, auto, education and entertainment.

Most of these companies are registered with names starting with 'Saradha', while there are also firms with other names. Authorities are already looking into alleged ponzi or multi-level marketing schemes of at least ten Saradha firms. Majority of the group's firms are into real estate. These include Saradha Build-Dev, Saradha Realty India, Saradha Infra Properties, Saradha Township, Saradha Villa and Saradha Housing. The group also has registered companies related to education, exports, automobiles, shopping mall, agro development, tour and travels, among others.

Typically, chit fund schemes are very small in size and operate among a small and fixed group of investors for a fixed tenure. In such schemes, generally a small number of people come together to pool in their money every month and one of those persons is given the entire pool of money. The money is later returned in installments.

In comparison, the illicit ponzi or money-circulation schemes involve thousands, and at times lakhs or crores of people, and the money collected from them also range from a few hundreds to lakhs of rupees. The regulatory probe shows that a large number of investors in the West Bengal and North-Eastern states have been lured into schemes of real estate, hospitality and tourism businesses with promises of huge returns.

About a dozen groups from this region are being probed by Sebi, while it has already taken action against many others in the past. A special task force has also been set up under the Serious Fraud Investigation Office (SFIO) to carry out all investigations into such companies, the Corporate Affairs Ministry said yesterday.

The decision was taken in view of a "larger public interest involved in these cases, and concerns regarding misuse/laundering by such companies of the ill-gotten wealth and the possibility that the promoters of these companies may strip these companies," the Ministry said. The probe follows raging public protest against alleged duping of lakhs of investors by Saradha group through their chit-fund and other money-pooling activities in West Bengal.

After being on the run for several days, Saradha Group Chief Sudipta Sen was arrested in Kashmir valley three days ago and a Kolkata court has ordered his police remand. The SFIO Task Force will also also coordinate with other law enforcement agencies and regulators wherever required, in its investigations.

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