Sebi Hopes Anti-Ponzi Ordinance Would Become a Law Soon

Armed with powers given through an ordinance to take on investment frauds, Sebi chairman U K Sinha today said he hopes it would soon become a permanent law to ensure continued clampdown against illegal investment schemes.

Mr Sinha said that a large number of illegal deposit-taking schemes were still defrauding the investors, although the capital markets regulator has used the powers granted through the ordinance very effectively to bring to book many entities engaged in such activities.

This ordinance gives Sebi 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.

While this ordinance has already been promulgated thrice, beginning last year, it would need to be replaced by a law through passage of a pending bill in the upcoming Parliament session, beginning next month, to amend various Sebi Acts.

Speaking at a conference here, the Sebi chief said: "Inspite of all measures we have taken in this country, there is still a large number of unregulated fund-raising activities, unregulated deposit taking activities under various names like chit funds, nidhi schemes, housing schemes and also coming under collective investment schemes (CIS).

"That menace is still not fully controlled. Government has come out with an ordinance to provide that if no other regulator is looking into a particular deposit taking activity and if size of the corpus is Rs 100 crore or more, then there would be a legal presumption that this is a CIS and Sebi would have regulatory jurisdiction in that matter."

Mr Sinha further said that the regulator has taken action in more than 25 cases since the ordinance was first promulgated.

"We have passed orders and we have stopped them from raising money. But, an ordinance is an ordinance and an ordinance has limited life. I am hopeful that the government will consider that this ordinance will be converted into an Act very soon," Mr Sinha said.

The chairman of the Securities and Exchange Board of India (Sebi) further said that "a good development that has taken place is that in 20 states and union territories, they have come out with their own law on protection of depositors.

"Sebi has requested the government that all the rest of the states should be encouraged to pass similar legislations.

"The idea is that if there is any attempt to raise money by taking advantage of legal or regulatory loopholes that should be curbed."

The menace of illegal investment schemes has grown big in recent years and thousands of crores of rupees have been collected from gullible investors across the country.

More than 500 such entities have so far come under regulatory scanner, while there are many more running illegal schemes in different parts of the country. Those running these schemes typically promise huge returns to investors without any safeguards and many of them tend to run away after amassing huge amounts of money.