Ponzi menace: Sebi wants states to put frontline checks

Sebi Chairman U K Sinha says state govts have immense powers, if utilised well, to bring to book such entities

As illicit money-pooling schemes sprout across nooks and corners of the country, Sebi has asked state governments to put in place the first line of defence against such activities and provide 'early warning systems' for cases requiring action by the capital markets regulator.

Promising full support to the states in fighting this menace where fraudsters have collected thousands of crores of rupee through various ponzi and other illegal schemes, Sebi Chairman U K Sinha said the state governments have immense powers, if utilised well, to bring to book such entities.

Sinha also urged all states to pass the State Deposit Protection Act, which would allow the state governments to take stern action against illegal deposit-taking activities within their jurisdictions. While many states have passed this Act already, at least seven others are yet to do so.

"Recently, there was a first-of-its-kind meeting of state chief secretaries, RBI and Sebi in Mumbai. The RBI Governor and I requested them to please take action against them (those running illegal money-pooling schemes) under the State Deposit Protection Act," Sinha told PTI.

Stressing on the need for an active role by states in this regard, Sinha said Sebi may not even get to know if "somebody in some district of Bihar or Uttar Pradesh is raising Rs 1 crore, Rs 2 crore or Rs 5 crore.

"I don't have the wherewithal to even come to take note of it, but the local administration might know about this. There may be some news published in a small newspaper which we will not be able to cover.

"What I am saying is that the first line of defence should be the state government," he said, while adding that Sebi was always there to take action in cases that are brought to its notice.

Under a new law, Sebi has been authorised to take action against all unregulated money-pooling schemes with a corpus of Rs 100 crore or more.

Lauding those states that have passed the Act for acting against such illegal schemes, SInha said, "States are legally empowered to take action. There was a confusion because finance is a central subject but the Supreme Court in a case of Tamil Nadu and Maharashtra has held that in the interest of protection of the depositors, state government is empowered.

"So, now the Acts passed by the state government have got constitutional validity and it has been upheld by the Supreme Court," he said.

Explaining the powers enjoyed by the states in this regard, Sinha said, "Under this Act, they have powers to not only register and act and all, but also the Act empowers them to seize the assets or to recover or sell the assets.

"They have powers to arrest them. The district magistrates and the police have got this power. So, what we have requested the states chief secretaries is if you want to control it, please act as the first level of defence and take action against these activities.

"Obviously if the amount is above Rs 100 crore, then we (Sebi) will be acting," Sinha added.