Ponzi schemes stump investors; at least Rs 40k cr in limbo

Tags: Investors, Ponzi, News
From illegal money pooling to siphoning off funds, a multitude of frauds together worth at least Rs 40,000 crore have come to light in 2013, even as government agencies and rejuvenated legislations promise to curb this spiralling menace.

With enticing promises of unrealistic returns, a large majority of these frauds revolve around unauthorised money raising activities or ponzi schemes targeting general public.

Not just greed, corporate governance lapses and regulatory loopholes also provided scamsters leeway this year.

If it was Saradha scam in the first half of the year, the latter part of 2013 witnessed National Spot Exchange Ltd (NSEL) fiasco and a soothing solution for the cheated investors still seems far away.

Saradha scam, perpetrated in the garb of chit funds, began unravelling in April before political ripples forced the governments, both at the Centre and in West Bengal, to swing into action. Though there are no official figures, estimates peg the total amount involved in Saradha scam at about Rs 30,000 crore.

Adding to the list, NSEL's Rs 5,600 crore payment crisis has not only dragged the exchange but also its promoter Financial Technologies and other group firms.

Many of the frauds targeting investors' hard-earned money have striking similarity to 'ponzi' schemes, while there are also cases of promoters and top management personnel allegedly siphoning off money from their respective companies for personal gains.

Ponzi schemes involve collection of money from public investors with promises of huge returns that are paid from deposits made by new investors. It owes its nomenclature to Italian businessman Charles Ponzi who had launched such schemes in the US in 1920s.

In recent past, similar techniques were used by American stock broker Bernard Madoff, who is now behind bars for running a ponzi scheme worth billions of dollars.

While the size of individual ponzi schemes that came to light in India this year is relatively smaller, there are many cases and their cumulative size could easily run into a few thousands of crores.

Some notable instances include Sebi action against Alchemist group entities, where the money involved in fraudulent activities was around Rs 1,500 crore. In a major development, Sebi has been granted greater powers this year to crackdown on illegal money-pooling schemes and other frauds.

To curb the growing menace of frauds, the government has ordered SFIO probes against 76 companies so far this fiscal -- the highest count in three years. While SFIO was asked to investigate 12 firms in 2011-12, the number of cases shot up to 46 in 2012-13 period. Summing up, as many as 134 cases came under the lens of SFIO alone in the last three years.

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