Govt plans tighter norms to check ponzi schemes below Rs 100cr

To check ponzi menace, government plans to bring in a tough set of norms to regulate money- circulation and pyramid marketing businesses involving corpus of less than Rs 100 crore wherein those running illicit schemes would face large penalties and imprisonment.
The new norms would include a detailed definition for 'money circulation schemes' to include all money-pooling activities with a corpus of less than Rs 100 crore and not covered under 'collective investment schemes' regulated by Sebi.
The new norms, as proposed by the Department of Financial Services after consultation with Sebi, RBI and various government departments and regulators, would also ensure a clampdown against all 'pyramid marketing activities', except for those involving transfer of goods or services having a real economic value.

However, the issues related to 'direct selling' have been left for the Consumer Affairs Ministry to decide.
The draft proposals, for amendments to the Prize Chits and Money Circulation Schemes (Banning) Act, would be first discussed by various concerned ministries, before being sent to the Union Cabinet, sources said.
The move is aimed at removing the regulatory gaps in tackling the ponzi menace. While Sebi has been given the powers to deal with all illicit money-pooling activities involving Rs 100 crore or more, there has been a lacunae with regard to smaller schemes. At times, ponzi operators also run multiple smaller schemes, rather than a single big one.

Sebi Chairman U K Sinha recently said that one area where some action is required is "the area of MLM and PCMCSB Act".

"We have had series of dialogue with the government (on this). The position has to be clarified to remove these loopholes," Sinha had told PTI in an interview.
A typical ponzi scheme involves the operator collecting a large amount of money from investors and paying them returns from their own money or the money collected from subsequent investors, rather than from profit earned by the person or entity operating such a scheme.
Many such schemes have come to the fore in India as well and many of them are currently being probed by various agencies, including Securities and Exchange Board of India (SEBI) and Serious Fraud Investigation Office (SFIO).