Tuesday, 24 December 2013

Enforcement action accelerates against Ponzi and MLM schemes

SUCHETA DALAL | 10/12/2013 06:37 PM |

A burst of enforcement action in the past fortnight raised hopes of crackdown against notorious Ponzi and MLM schemes
A huge burst of long overdue enforcement activity in the past fortnight raises hopes, for the first time, of some check on the mushrooming of dubious ponzi schemes, direct selling companies, collective investment schemes (CIS) and pseudo-chit funds. Consider this.
• On November 22, the Supreme Court, finally, clamped down on the personal freedom of Subrata Roy, founder of the strange Sahara group and barred him from travelling abroad or alienating assets.
• On the very same day, Mumbai’s Economic Offences Wing (EOW) arrested eight agents of QNet, a controversial, Hong Kong-based multi-level marketing (MLM) company promoted by a Malaysian. The police have already frozen the bank accounts of these ‘team leaders’.
• On November 23, Kunal Ghosh, a suspended member of parliament (MP) of the Trinamool Congress, was arrested for colluding and conspiring with Sudipta Sen, founder of the Saradha group which went bust and took down a few thousand crores of savings of poor and low-income people.
• On 28th November, Malabar Gold and Diamonds, the rapidly expanding jewellery chain from Kerala, was raided by officials of the Directorate of Revenue Intelligence (DRI) at Kozhikode. According to a report in The Hindu, the raid followed a statement from one of the accused involved in smuggling gold from the Gulf and selling it to the jewellery group. The group’s turnover has reportedly grown from Rs50 lakh to Rs22,000 crore in just 20 years!
• On 2nd December, the EOW, Mumbai, nabbed the alleged mastermind of SpeakAsia, Ram Niwas Pal, who has fraudulent cornered over Rs300 crore, according to the police. Moneylife was the first to report about this brazen and high-profile ponzi which went bust in October 2010 taking down over Rs2,000 crore belonging to 230,000 people. The key promoters of this Singapore-registered company are still absconding; nor have they been made to return the Rs900+ crore transferred to Singapore alone.
Some of the credit for this flurry of activity by other enforcement agencies probably goes to the Securities and Exchange Board of India (SEBI) which has used its recently acquired powers to crack down on a series of CIS including teak tree investment schemes and a time-share called Orient Resorts. It has also ordered the freezing of assets worth over Rs500 crore of companies involved in various irregularities. Clearly, regulatory overlap leads to better enforcement and  action, if one of the regulators/agencies is willing to act decisively. A similar 
rush of activity is evident on the National Spot Exchange Limited (NSEL) scam where, again, Mumbai’s EOW is leading the crackdown and attachment of properties, rather than any independent regulator. 
But we have a long way to go before we even make a dent in the explosion of Internet-based scams and tricks (work-at-home scams, insurance scams, job scams, lost wallet scams, Nigerian scams) that are sucking up the savings of gullible people everyday. Topping the list are get-rich schemes targeting housewives and people laid-off from work which lure their victims promising high earnings from home-based work. Often, these are variations of the SpeakAsia survey fraud and would correctly be the domain of the Serious Fraud Investigation Office (SFIO). 
But SFIO is one agency that remains somnolent even after the new Companies Act 
2013 has hugely enhanced its powers; it lists SpeakAsia and QNet as ongoing investigations with very little action.