Banned Ponzi schemes not under regulatory purview: SEBI to SC

The Securities and Exchange Board of India (SEBI) today told the Supreme Court that banned Ponzi schemes do not fall under its regulatory purview and only the state governments concerned can control them.
The stock market regulator also said banned activities cannot be regulated by any regulator and be just stopped, if it is intimated about such schemes or it takes suo moto cognizance.
"It is submitted that ponzi schemes do not fall under the regulatory purview of SEBI. The same is banned under Chit Fund and Money Circulation (Banning) Act 1978, and the concerned state government is the enforcement agency of the said law," SEBI said in an affidavit, adding that only Collective Investment Schemes (CIS) are under its jurisdiction and these too can be stopped if not registered.

"Banned activities cannot be regulated by any regulator, except to stop the same if made aware of it. It is stated that CIS, within the domain of SEBI, is not banned activity, but is authorized only upon registration/permission of, as the case may be, with SEBI and in the absence of such registration such schemes are not allowed to operate and have to be stopped.
"Upon being made aware of the same, or suo moto coming to knowledge of such schemes, SEBI has been taking action by way of interim order and final order," it said.
The response of the regulator came on a PIL filed by NGO 'Humanity Salt Lake' alleging inaction on the part of the government in regulating chit funds resulting in multiple scams across the country.

SEBI also told the apex court in its affidavit that it has been "alert and proactive in tackling the menace of unauthorized money mobilization".

The markets regulator said through various measures it has spread awareness among investors about unregistered CIS schemes.
"Investor education/ awareness activities are conducted under the aegis of SEBI Investor Protection and Education Fund (IPEF) and so far over Rs 73 crore have been spent on various education/awareness activities including media campaign on unregistered CIS/ unrealistic returns," it said.
The authority said that in compliance to the apex court directions issued on February 2, 2016, in a case involving PACL Ltd, a committee was constituted by SEBI on February 17 under the Chairmanship of former Chief Justice R M Lodha for disposing of the land purchased by PACL so that sale proceeds can be paid to investors who invested funds in the company.

"Every effort is being made by SEBI to control the menace of illegal collection of money in the garb of collective investments schemes and deemed public issues," it said.
The regulator said it has been issuing directions against various entities for refund of money mobilized in violation of SEBI regulations such as CIS regulations etc., and initiates recovery proceedings in case of non-compliance with such directions.
"In some cases, recovery proceedings could not be initiated due to stays granted by Securities Appellate Tribunal or intervention by other courts. In cases where recoveries are initiated, further progress is hampered due to multi-agency attachments," it said.