Sebi orders refunds in 'potato' ponzi scheme

Sebi orders refunds in 'potato' ponzi scheme

Cracking down on a 'potato purchase' illegal investment scheme promising up to 100 per cent gain in just 15 months, Sebi on Friday asked a Kolkata-based company to wind down these schemes and refund investor money in 3 months.

Sebi also restrained the firm, Sumangal Industries, from the securities markets till the time entire money is refunded and all its collective investment schemes are wound up.

In the event of the company failing to comply with the order, the regulator warned the company and its eleven promoters and directors of initiating prosecution proceedings and a civil/criminal case against them for "offences of fraud, cheating, criminal breach of trust and misappropriation of public funds".

Today's order follows a show-cause notice and interim directions issued by Sebi on April 10 to Sumangal Industries, which was promising investors 20-100 per cent return on their investments within 15 months through a scheme involving purchase and subsequent sale of potatoes.

Sebi also said it would make a reference to the Ministry of Corporate Affairs to initiate the process of winding up of the company if it does not refund the money to investors and wind up all its schemes within three months.

In its interim direction, Sebi had asked the company to stop raising any further money till further orders and had asked it to reply within 15 days.

Sebi had begun a probe into the matter after it came across a newspaper advertisement in Kolkata by Sumangal Industries, wherein it was soliciting funds from the public under a ‘Flexi Potato Purchase Scheme’.

The regulator had subsequently informed the companyin October 2012 that no entity could carry on or sponsor or launch a collective investment scheme without its approval.

It also said the company would have to submit certain documents to obtain the certificate.

However, the company in its reply to Sebi said it was trading in potatoes for which it had a trading licence and it was dealing in agricultural and non-agricultural products within and outside India.

It also denied that it was running a collective investment scheme and submitted that the question of obtaining a certificate of registration from Sebi did not arise.

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