Realtors under Sebi scanner for fraudulent investment schemes

Suspecting investor frauds in the projects being launched by numerous real estate developers, capital markets regulator Securities and Exchange Board of India (Sebi) is probing them for possible violations of collective investment scheme (CIS) regulations.

A CIS entity typically raises funds from the public to invest the money in a project or investment scheme proposed with the capital collected from a pool of investors and the returns are shared on pro-rata basis at a later stage

The regulator has been flooded with complaints of investors being duped by real estate companies promising huge returns in projects proposed to be developed from scratch through public money, prompting it to launch probe against 50-60 such developers, a senior official said. Most of these companies are operating in the northern and western states, while some of them are also active in West Bengal, Assam and other parts of the country, he said.

Sebi is probing whether these companies are operating collective investment schemes (CIS) without registering themselves for such activities with the regulatory authority.

A CIS entity typically raises funds from the public to invest the money in a project or investment scheme proposed with the capital collected from a pool of investors and the returns are shared on pro-rata basis at a later stage.

However, a number of fraudulent CIS entities have been found to be operating in the country over the past many years and many of these come under the radar only after duping the investors of their hard-earned money. Real estate projects appear to have emerged as a favourite for entities operating such fraudulent schemes and complaints in this regard have been pouring in consistently at Sebi, which is mandated to regulate the CIS entities.

Typically in these fraudulent schemes, the companies lure investors into putting in their money for purchase of land and thereafter for development of projects and promise them huge returns at a later stage. The companies even offer to buy back the properties with considerable appreciation to the original investment, but the investors often find them at the receiving end soon after putting in their money, or after being given some small initial returns in certain cases.

In the recent past, Sebi had already taken action against some real estate firms for operating unauthorised CIS schemes, while in some other cases the courts had ruled in favour of actions taken by the market regulator for such fraudulent schemes.