Gold-linked money pooling schemes under Sebi scanner

As Sebi continues its crackdown on fraudulent money-pooling activities, it has come across a large number of cases where investors are being lured into various gold-linked bond schemes.

However, a lack of clarity with regard to regulations for most of such schemes is making it difficult for the capital markets regulator to act against their operators, because of which Sebi is seeking help from other regulators and government departments, including RBI, on these cases.

Sebi may have to refer most of the gold-linked money pooling cases to RBI, which is entrusted with the regulation of 'Gold Deposit Schemes' offered by banks and registered Non Banking Finance Companies, a senior official said.

However, the problems are more acute with regard to 'gold bond schemes' being offered by entities who are neither banks nor NBFCs, and therefore not registered with RBI, he added.

For example, a number of jewellers and other entities involved in bullion business have launched various schemes allowing customers to pay instalments and take delivery of gold or get applicable returns at a later date.

While many schemes appear to be pure sale-purchase activities with money being paid linked to actual delivery of gold or jewellery worth equivalent amount, there are numerous cases involving issuance of certain bonds making them securities market transactions.

These schemes typically ask the investor to contribute instalments of as low as Rs 100-1,000 per month, while they are promised returns linked to gold price appreciation after expiry of one year or more.

The total quantum of money pooled by such schemes could not be quantified, as they are widely dispersed across the country and funds collected by many such operators are not reported to any single agency.

However, estimates suggest that there are at least 100 such schemes across the country that could have raised amounts higher than Rs 100 crore -- the threshold limit for any money pooling activity to possibly become a Collective Investment Scheme (CIS) if contributions made by investors are pooled and managed on their behalf to earn profits.

There could be some gold schemes with total deposits running into thousands of crores, although their exact size is difficult to be ascertained, another official said, adding that all such schemes may not be totally illegal as investor complaints have been received against certain registered 'Gold Deposit Schemes' as well.

Sebi has identified crackdown against fraudulent money circulation schemes as one of its priority areas and the capital markets watchdog is strengthening its coordination mechanism with other regulators like RBI, as also with the central and state governments, in this regard.