Sebi wants to give up its powers to regulate ponzi schemes

MUMBAI: India’s market regulator wants to relinquish powers to regulate collective investment schemes (CIS) which involve illegitimate pooling of public money, after failing to successfully close even a single case, although the very presence of a regulator to investigate such schemes has, to some extent, acted as a deterrent to their launch.

Four years ago, the Securities and Exchange Board of India (Sebi) was empowered to act against Ponzi schemes and other illegal money pooling and deposit-taking activity.

“Sebi has been actively passing orders against illegal moneypooling activities,” said a Sebi official who asked not to be identified. “The market has got the message that Sebi is closely monitoring all illegal CIS activities. So the number of fresh CIS cases reported to Sebi has gone down. But it has been difficult to identify and recover the assets from the owners of such CIS firms.”

There are agencies that are better equipped to do this, added this person—state governments and local police departments, monitored by a “central body” created for this purpose. “So Sebi has sent its recommendations to a parliamentary committee and asked the government to transfer the powers from Sebi. It can assist any central body if created for this purpose.”

Although Sebi has passed orders against at least 300 illegal money-pooling entities and initiated asset seizure and recovery proceedings against them, not one has filed a winding and repayment report (WRR)—a declaration by a banned CIS entity that it has wound up all moneypooling schemes and repaid all investors.

Sebi rules require all banned CIS firms to discontinue their schemes, repay investors within three months and file a WRR.

The number of CIS cases before Sebi has piled up.

Along with this, the pressure related to regulating CIS, investigating illegal schemes, passing ban orders and initiating recovery proceedings, said the second person, who also spoke on condition of anonymity.

This could well be affecting Sebi’s ability to do its work well, Mint had said in a January report citing people who declined to be named.