After recording the statements of various high-profile individuals, the
Enforcement Directorate is likely to file its first charge-sheet in the
Saradha chit fund scam by July.
Besides filing a case under the PMLA in the scam, the ED has also attached assets worth Rs 140 crore belonging to individuals and firms on money laundering charges in this case.
Tackling economic offences has become the top priority of investigating agencies like the CBI and ED. The best investigators with skills to crack fraudulent schemes like the Saradha chit fund and the National Spot Exchange Limited case are on the job.
+with+another+Saradha+official,+Debjani+Mukherjee.jpg)
Following the Supreme Court directed the CBI to investigate the Saradha case, it has decided to set up a Special Investigation Team to probe the scam involving an estimated Rs 10,000 crore amassed by duping thousands of investors.
While Saradha is a classic example of a ponzi scheme following a multi-level marketing model, the NSEL scam has exposed the shortcomings in the regulatory framework as most of the commodities marketed by it never existed.
More than 15,000 private investors and some public sector undertakings were duped. There was also the Sahara case where market regulator SEBI alleged that the group cheated its investors.
The matter reached the SC and Subrata Roy, the chairman of the group, is in Tahir Jail for more than two months. Another scam which was being run like a ponzi and is being investigated by the CBI is the case involving the Pearls group, in which Rs 45,000 crore was swindled out and nearly 5 crore people were cheated.
The disturbing trend of such schemes directed at cheating investors shook the government, and more powers have been given to market regulator SEBI.
The Securities Laws (Amendment) ordinance covering the functioning of SEBI has been brought in to combat the menace of ponzi schemes.
The body has been given the power to regulate money pooling schemes worth Rs 100 crore or more - a common modus operandi for ponzi schemes.
The arrest of Jignesh Shah, Chairman and CEO of Financial Technologies in the Rs 5,600 crore National Spot Exchange Ltd (NSEL) scam on May 7, brings to the fore the gaping holes in India's regulatory framework for exchanges which encourage wily entrepreneurs to float companies that defraud unwitting customers.
It also calls for better regulatory oversight and according more teeth to the commodities regulator, the Forward Markets Commission (FMC).
At the heart of the NSEL fiasco was a practice at the exchange, where members were allowed to take long term forward contracts in commodities such as oilseeds, cereals and pulses, although the exchange was allowed to handle only spot contracts, similar to mandis where buyers and sellers exchange goods for money.
Taking advantage of a 2007 Ministry of Company Affairs (MCA) guideline that gave a conditional exemption to spot exchanges to offer one day forward contracts, NSEL conducted trading in forward contracts such as T+2 (trade plus two days) and T+25, where an investor, through their brokers such as Motilal Oswal Securities bought and sold goods, without any underlying securities.
They entered into contracts to buy commodities from "borrowers" such as N.K. Proteins and Mohan India. The T+2 contract enabled them to pay for the commodities two days later. At the same time, they entered into contracts with the same borrowers to sell the commodities after 25 days through a T+25 scheme. There would be an assured, annualised return of 13.5 per cent in this transaction.
"The process offered more liquidity than investing in bonds on fixed deposits, since the trader could avail the money at more frequent intervals," says Ketan Shah, one of the 13,000 investors who lost the money.
Investors were happy with their guaranteed returns until July, when the borrowers could no longer pay off the investors and government investigations revealed illegal and fraudulent trade. In July 2013, MCA stepped in, asking NSEL not to launch new contracts and settle the existing ones.
In October FMC wrote to NSEL, accusing its promoters and directors of complicity in cheating investors, a move that triggered the fall of the exchange and its promoter. FMC has all the while maintained that NSEL came outside its regulatory purview.
How the scam worked
But it did point out two of its reservations. First, NSEL permitted trading members to sell on their platform without confirming that they had goods in their possession, which amounted to a short sale.
Second, FMC disagreed with the contract duration of over 11 days in a spot exchange.
But the question here is, if the FMC felt it did not have the mandate to regulate NSEL, why didn't it seek explanations on the matter much earlier?
Investors say that timely action from the government would have saved many of them. They attribute the delayed action to Jignesh Shah's proximity to the who's who in the corridors of power. Other experts such as Jaimini Bhagwati, RBI Chair Professor at Icrier, says that the Sebi Act needs to be amended to include spot and futures trading in all commodities squarely and firmly within the capital market regulator's remit.
Also, the FMC should be absorbed within Sebi, he says. Meanwhile, the Forward Markets Regulation Bill, which seeks to amend the Forward Contracts (Regulation) Act, 1952, is awaiting Parliament's nod.
It will give more powers to the FMC, and open the door for introduction of new products like options and indices trading in the commodities futures market.
The NSEL scam calls for greater co-ordination among government departments, regulators and exchanges to plug regulatory loopholes, involving even brokerage firms. Meanwhile, the Economic Offences Wing of the Mumbai Police feels they have a water-tight case against him.
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Investors want court to monitor CBI probe
By Soudhriti Bhabani in Kolkata
With the Supreme Court verdict asking the CBI to probe into the multi-crore Saradha chit fund scam, investors who had been cheated by the ponzi schemes now wanted a court-monitored CBI probe in the issue.
Chit fund Sufferers' Unity Forum (CSUF), an umbrella organisation protesting and safeguarding interests of the duped investors, demanded a court-monitored investigation in Saradha Group chit fund scam as it involved many high profile names, some of them from the state's ruling Trinamool Congress.
"We want the apex court to monitor the whole process of investigation. Also, we have decided to prepare a list of other chit fund companies that are operating across West Bengal. We will also include their volume of assets whatever information we can collect from our sources and will hand it over to the federal investigating agency," said Ashim Chatterjee, convenor of CSUF.
He said there are nearly 1,500 such shell companies are still operating in the rural outskirts of Bengal collecting small-saving deposits, mostly from the marginalised sections. He said that CSUF had already written to Chief Minister Mamata Banerjee highlighting the point and requested her to implement it for all the chit fund entities active across the state.
"The CM has turned our appeal in deaf ears. We sought an appointment to share our point of view with her on the matter but we were denied any time for the meeting," Chatterjee said.
The Sudipta Sen-led chit fund company Saradha Group had decamped with several thousands crores of small-savings deposits from investors by making false claims of their proposed ventures in an attempt to amass more money from the market.
It was revealed that the chit fund group had made false announcements to set up shopping malls at Madhyamgram in North 24 Parganas, Contai in East Midnapore and Bishnupur near Joka in South 24 Parganas and luxury apartments almost in every West Bengal district and a five-star hotel without mentioning any particular location and other details of the plot and proposed investments.
Courtesy:
By M.g. Arun
Published: 21:47 GMT, 11 May 2014 | Updated: 21:47 GMT, 11 May 2014
Follow us: @MailOnline on Twitter | DailyMail on Facebook
http://www.dailymail.co.uk/indiahome/indianews/article-2625739/CBI-ED-join-forces-nail-chit-fund-scammers-prey-innocent-investors.html
Besides filing a case under the PMLA in the scam, the ED has also attached assets worth Rs 140 crore belonging to individuals and firms on money laundering charges in this case.
Tackling economic offences has become the top priority of investigating agencies like the CBI and ED. The best investigators with skills to crack fraudulent schemes like the Saradha chit fund and the National Spot Exchange Limited case are on the job.
Following the Supreme Court directed the CBI to investigate the Saradha case, it has decided to set up a Special Investigation Team to probe the scam involving an estimated Rs 10,000 crore amassed by duping thousands of investors.
While Saradha is a classic example of a ponzi scheme following a multi-level marketing model, the NSEL scam has exposed the shortcomings in the regulatory framework as most of the commodities marketed by it never existed.
More than 15,000 private investors and some public sector undertakings were duped. There was also the Sahara case where market regulator SEBI alleged that the group cheated its investors.
The matter reached the SC and Subrata Roy, the chairman of the group, is in Tahir Jail for more than two months. Another scam which was being run like a ponzi and is being investigated by the CBI is the case involving the Pearls group, in which Rs 45,000 crore was swindled out and nearly 5 crore people were cheated.
The disturbing trend of such schemes directed at cheating investors shook the government, and more powers have been given to market regulator SEBI.
The Securities Laws (Amendment) ordinance covering the functioning of SEBI has been brought in to combat the menace of ponzi schemes.
The body has been given the power to regulate money pooling schemes worth Rs 100 crore or more - a common modus operandi for ponzi schemes.
The arrest of Jignesh Shah, Chairman and CEO of Financial Technologies in the Rs 5,600 crore National Spot Exchange Ltd (NSEL) scam on May 7, brings to the fore the gaping holes in India's regulatory framework for exchanges which encourage wily entrepreneurs to float companies that defraud unwitting customers.
It also calls for better regulatory oversight and according more teeth to the commodities regulator, the Forward Markets Commission (FMC).
At the heart of the NSEL fiasco was a practice at the exchange, where members were allowed to take long term forward contracts in commodities such as oilseeds, cereals and pulses, although the exchange was allowed to handle only spot contracts, similar to mandis where buyers and sellers exchange goods for money.
Taking advantage of a 2007 Ministry of Company Affairs (MCA) guideline that gave a conditional exemption to spot exchanges to offer one day forward contracts, NSEL conducted trading in forward contracts such as T+2 (trade plus two days) and T+25, where an investor, through their brokers such as Motilal Oswal Securities bought and sold goods, without any underlying securities.
They entered into contracts to buy commodities from "borrowers" such as N.K. Proteins and Mohan India. The T+2 contract enabled them to pay for the commodities two days later. At the same time, they entered into contracts with the same borrowers to sell the commodities after 25 days through a T+25 scheme. There would be an assured, annualised return of 13.5 per cent in this transaction.
"The process offered more liquidity than investing in bonds on fixed deposits, since the trader could avail the money at more frequent intervals," says Ketan Shah, one of the 13,000 investors who lost the money.
Investors were happy with their guaranteed returns until July, when the borrowers could no longer pay off the investors and government investigations revealed illegal and fraudulent trade. In July 2013, MCA stepped in, asking NSEL not to launch new contracts and settle the existing ones.
In October FMC wrote to NSEL, accusing its promoters and directors of complicity in cheating investors, a move that triggered the fall of the exchange and its promoter. FMC has all the while maintained that NSEL came outside its regulatory purview.
How the scam worked
But it did point out two of its reservations. First, NSEL permitted trading members to sell on their platform without confirming that they had goods in their possession, which amounted to a short sale.
Second, FMC disagreed with the contract duration of over 11 days in a spot exchange.
But the question here is, if the FMC felt it did not have the mandate to regulate NSEL, why didn't it seek explanations on the matter much earlier?
Investors say that timely action from the government would have saved many of them. They attribute the delayed action to Jignesh Shah's proximity to the who's who in the corridors of power. Other experts such as Jaimini Bhagwati, RBI Chair Professor at Icrier, says that the Sebi Act needs to be amended to include spot and futures trading in all commodities squarely and firmly within the capital market regulator's remit.
Also, the FMC should be absorbed within Sebi, he says. Meanwhile, the Forward Markets Regulation Bill, which seeks to amend the Forward Contracts (Regulation) Act, 1952, is awaiting Parliament's nod.
It will give more powers to the FMC, and open the door for introduction of new products like options and indices trading in the commodities futures market.
The NSEL scam calls for greater co-ordination among government departments, regulators and exchanges to plug regulatory loopholes, involving even brokerage firms. Meanwhile, the Economic Offences Wing of the Mumbai Police feels they have a water-tight case against him.
Investors want court to monitor CBI probe
By Soudhriti Bhabani in Kolkata
With the Supreme Court verdict asking the CBI to probe into the multi-crore Saradha chit fund scam, investors who had been cheated by the ponzi schemes now wanted a court-monitored CBI probe in the issue.
Chit fund Sufferers' Unity Forum (CSUF), an umbrella organisation protesting and safeguarding interests of the duped investors, demanded a court-monitored investigation in Saradha Group chit fund scam as it involved many high profile names, some of them from the state's ruling Trinamool Congress.
"We want the apex court to monitor the whole process of investigation. Also, we have decided to prepare a list of other chit fund companies that are operating across West Bengal. We will also include their volume of assets whatever information we can collect from our sources and will hand it over to the federal investigating agency," said Ashim Chatterjee, convenor of CSUF.
He said there are nearly 1,500 such shell companies are still operating in the rural outskirts of Bengal collecting small-saving deposits, mostly from the marginalised sections. He said that CSUF had already written to Chief Minister Mamata Banerjee highlighting the point and requested her to implement it for all the chit fund entities active across the state.
"The CM has turned our appeal in deaf ears. We sought an appointment to share our point of view with her on the matter but we were denied any time for the meeting," Chatterjee said.
The Sudipta Sen-led chit fund company Saradha Group had decamped with several thousands crores of small-savings deposits from investors by making false claims of their proposed ventures in an attempt to amass more money from the market.
It was revealed that the chit fund group had made false announcements to set up shopping malls at Madhyamgram in North 24 Parganas, Contai in East Midnapore and Bishnupur near Joka in South 24 Parganas and luxury apartments almost in every West Bengal district and a five-star hotel without mentioning any particular location and other details of the plot and proposed investments.
Courtesy:
By M.g. Arun
Published: 21:47 GMT, 11 May 2014 | Updated: 21:47 GMT, 11 May 2014
Follow us: @MailOnline on Twitter | DailyMail on Facebook
http://www.dailymail.co.uk/indiahome/indianews/article-2625739/CBI-ED-join-forces-nail-chit-fund-scammers-prey-innocent-investors.html
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