From grey to red on Ponzi schemes

Parliament panel concerned at multiple regulatory bodies, ambiguities between jurisdictions in monitoring money pools

Parliament's standing committee on finance could propose a common regulator for money pooling schemes, many of which thrive by operating in a regulatory grey area.

According to sources, the committee (headed by former Union law minister Veerappa Moily) is likely to take up the issue. Last week, it was in this city and met the markets regulator, Securities and Exchange Board of India (Sebi), the exchanges and banks, to prepare a report on the financial markets.

It had noted that the checking of ponzi schemes come under different regulatory bodies - Sebi, Reserve Bank of India (RBI), ministry of corporate affairs (MCA) and state governments. "The lack of a comprehensive regulator leads to many of these schemes falling between regulatory gaps," said a member.

The committee noted gold schemes and nidhis or mutual benefit schemes come under the regulatory purview of the central bank and MCA. While, multi-level marketing schemes and those by cooperative societies are governed by state laws. Only collective investment schemes (CIS) face Sebi scrutiny.

"To effectively deal with the menace of unathorised and illegal money mobilisation at an early stage, many state governments have enacted state laws. For enactment of a Protection of Interest Depositors' Act by all states and Union Territories, (we have) written to the ministry of finance in June this year," Sebi informed the parliamentary committee.

In the three years till September 2015, Sebi passed 75 interim or prohibitory orders in CIs matters, with 51 orders in 2014-15. Final orders were passed in 32 cases, with directions to refund the monies collected.

Sebi in the matter of CIS and Deemed Public Issues (DPI) had initiated recovery proceeding in 19 cases and issued 105 attachment orders. The amount involved was Rs 3,500 crore. However, it has been able to recover only Rs 2.8 crore of this amount. There are six prohibitory orders in CIS and DPI matters.

"It is to be clarified that unauthorised money pooling are falling under various regulators. Upon completion of examination of applicability of the Sebi Act, (we have) referred 1,438 cases to various agencies, including state governments," Sebi officials informed the committee.

Also, that it had so far got references or complaints against 292 companies for carrying on CIS activities.

"A nodal department of the central government should compile updates on these cases and facilitate coordinated action with the agencies concerned like Sebi, RBI, MCA and department of financial services. Central Bureau of Investigation, enforcement directorate, income tax and enforcement agencies from states may also be involved in this exercise," felt the Moily committee.