Investor frauds: Vanishing cos, Ponzi schemes face Govt probe

The government today said it has found 87 companies across the country to have vanished after raising funds totalling Rs 342 crore through public issues and a majority of such firms were from the state of Gujarat.

Besides, 87 other companies are also being probed by the government agencies for duping the general public through illegal Multi-Level Marketing (MLM) or Ponzi schemes and West Bengal tops this list with as many as 73 such entities.

The market regulator Sebi has also detected as many as 669 companies to have duped the investors of Rs 7,435 crore through illegal collective investment schemes, Corporate Affairs Minister Sachin Pilot informed the Lok Sabha.

The entities are classified as 'vanishing companies' if they cease to file their balance sheets and other documents after raising capital and the whereabouts of their offices or directors become untraceable.

In the Ponzi or MLM investments, the companies generally raise the money from general public and ask each investor to lure others into these schemes with a promise of huge returns. However, the operators disappear after some time, leaving the gullible investors in lurch.

Giving details of the entities running such Ponzi schemes, as also that of the vanishing companies, Pilot said that Chief Ministers of various states have been requested to issue directions to their respective police authorities to take action against the erring companies.

Pilot said he has also written to Finance Minister to facilitate increased surveillance by RBI over unauthorised NBFCs (Non Banking Finance Companies) to tackle the menace of Ponzi schemes.

"The Ministry takes prompt action against errant companies as and when complaints are received against them. At present, action has been initiated on complaints received against 87 companies relating to MLM/Ponzi schemes," Pilot said.

In reply to another query on vanishing companies, the Minister said that the government had initially identified 238 such entities that have raised money through public issues.
Out of these, 119 companies were put under a 'watch list', as they began filing their balance sheets and other documents with the Registrar of Companies or stock exchanges.

Out of the remaining 119 companies, 32 companies are presently under liquidation, while 87 others have been classified as 'vanishing companies', Pilot said.
"The total amount of public issues made by these 87 companies is Rs 341.90 crore (approximately)," he said.

As per the state-wise list, 26 companies out of the total 87 such untraceable firms were registered in Gujarat.

Gujarat is followed by Andhra Pradesh (13), Tamil Nadu (10), Maharashtra (9), Delhi (5), West Bengal (5), Madhya Pradesh (5), and Uttar Pradesh (4) for such companies.