Ponzi crackdown in 2014: Sebi orders refund of over Rs 60k cr

Armed with new powers to check illegal money pooling schemes, Sebi asked 117 entities in 2014 to refund more than Rs 60,000 crore to the defrauded investors and the crackdown is set to get stronger in the new year.

The amount raised by these entities through illegal Collective Investment Schemes and unauthorised deemed public issues could be much higher, as Sebi mostly relied on the disclosures made by those companies about quantum of funds.

The total size of such funds exceeds Rs 1 lakh crore after including the cases where Sebi's action has been challenged in courts.

Sebi action against these firms followed the amendments to the Sebi Act and other related legislations to empower the capital market regulator to crack down on ponzi schemes and other investment frauds.

An analysis of orders passed by Sebi during 2014 shows that the Securities and Exchange Board of India (Sebi) took action against 117 such companies, out of which those based in West Bengal account account for a majority.

As many as 49 out of 117 companies are based in West Bengal, of which 43 were registered in Kolkata itself. Moreover, West Bengal-based entities solicited at least Rs 52,035.48 crore from public representing more than 86 per cent share of the total Rs 59,663.66 crore raised by the 117 firms.

Some of the major West Bengal based companies include Rose Valley Constructions, Ramel Industries and NVD Solar Ltd.

Under the amended securities laws, Sebi has been given sweeping powers like attachment of properties, launch of recovery proceedings, seeking call data records to investigate cases and ordering search and seizure against manipulators and fraudsters.

Out of the 117 orders passed in 2014, at least 70 are against the companies having raised public money by issuance of securities such as debentures and preference shares without complying with the necessary regulatory laws, as per an analysis of directions passed by Sebi.

Together, these companies are estimated to have raised close to Rs 3,207 crore from investors.

In most cases, the regulator has passed interim orders prohibiting the companies from mobilising further funds till further directions. In other cases, final orders have been passed while directing the companies concerned to refund money to the investors within stipulated time periods.

In cases of illegal Collective Investment Schemes (CIS) also, the market watchdog has passed orders against at least 47 companies, with PACL Ltd alone accounting for Rs 50,000 crore worth of illegal fund raising activity -- making it the biggest ever crackdown by Sebi.

These firms were running CIS without obtaining registration from Sebi and had raked in unauthorised funds promising high returns to investors.

A large number of the schemes were also carried out under the garb of real estate business.

In December alone, Sebi passed orders against 35 firms that together had raised at least Rs 1,900 crore.

Some other major clampdowns by Sebi on companies running unauthorised fund raising activity included Pancard Clubs Ltd which solicited nearly Rs 3,100 crore from investors and Sai Prakash Properties Development that mobilised an amount of Rs 886 crore from public.

Other companies include Mega Mould India (Rs 716 crore), Royal Twinkle Star Club (Rs 668 crore), NVD Solar Ltd (Rs 595 crore), Sai Prasad Corporation (Rs 478 crore) and KBCL India (Rs 118.7 crore).

The data was collected from information given in the Sebi orders, starting beginning of the year.