Sebi launches probe against Saradha Group

To probe whether Saradha's fund-raising business was within Collective Investment Scheme regulations

The Securities and Exchange Board of India (Sebi) has initiated a probe into the activities of the beleaguered Saradha Group in West Bengal, which had collected crores of rupees promising higher-than-average returns before shutting down. Sebi will investigate whether Saradha’s fund-raising business was within the Collective Investment Scheme (CIS) regulations, said a senior Sebi official.

“Sebi has already initiated an inquiry following certain complaints against Saradha Group. Since the matter is under investigation, we cannot comment any further,” said the official.

The capital market regulator’s probe comes in the wake of repayment defaults by Saradha Group, which resulted in a few deposit-holders and agents killing themselves. The company’s weakening finances had forced it to shut down the newspapers and television channels, which it had either launched or acquired since 2010-11.

According to reports, at least Rs 20,000 crore of deposit holders’ money is at risk after the sudden closure.

Sebi has received complaints that Saradha had raised money without necessary approvals. While Sebi regulates CIS, chit funds come under state governments’ ambit.

A CIS is defined as any scheme or arrangement made or offered by any company under which the contributions or payments made by the investors are pooled and utilised with a view to receiving profits, income or property, and is managed on behalf of the investors.

Schemes including chit funds, Nidhi companies and schemes offered by co-operative societies do not constitute CIS.

Sebi has been seeking more powers to nail offenders who collect money without seeking approval. The regulator has sought amendment to the Sebi Act as it has faced difficulties while recovering money from illegal CIS.

Terming unauthorised CIS as the ‘grey market’ of the financial space, Sebi Chairman U K Sinha had recently said the rise in volumes in such activity was worrisome.

“The audacity and frequency with which it (illegitimate money collection) is happening is worrying and something all of us must take note of,” he had said.
THE STORY SO FAR

• Sebi has received complaints that Saradha had raised money without approvals
• Sebi will investigate whether Saradha’s fund-raising business was within the CIS regulations
• Sebi regulates CIS, while chit funds come under state governments’ ambit