India Insight

Ponzi scheme in West Bengal flames out, embers linger

April 26, 2013

Suicides, thousands of duped investors, hundreds of laid-off journalists, bickering politicians, protests slack regulation, one suspected mastermind arrested: it’s Ponzi scheme time in West Bengal, and it looks likely that little will change after the drama ends.

The latest fleecing of poor and middle-class investors brought in an estimated $730 million, according to media reports, though public interest litigation filed in the Calcutta High Court by one lawyer says the amount is as high as Rs. 300 billion. ($5.5 billion) The head of the Saradha Group and accused mastermind of the scheme, Sudipta Sen, was arrested in Kashmir on April 23 after two weeks as a fugitive. He has maintained his innocence, and reportedly threatened suicide, saying he might not be able to repay investors.

Sen started out as a small-time property dealer in the late 1990′s in Kolkata. His Saradha Group in the past decade had interests in real estate, tours groups and newspapers and television stations, and eventually owned nearly 100 companies.

Data from India’s Ministry of Corporate Affairs reveals interesting details. Many were incorporated in a one-week period in January 2011. They shared an address: 455 Diamond Harbour Road, Behala, Kolkata. They each listed working capital of Rs. 5 lakh each ($9,196). Their email addresses were the same. India’s market regulator, the Securities and Exchange Board of India, began investigating the Saradha Group in 2010.

Three years after its investigation began, SEBI on April 23 ordered the company to pay back investors in three months. It has threatened to start a criminal case if investors don’t get their money back, according to NDTV. West Bengal sought Sen’s arrest, and the Congress Party has asked for a federal law enforcement investigation.

Here is how Saradha allegedly presented the scheme, according to NDTV: glossy brochures, abnormally high returns of 15 percent to 50 percent, an estimated 250,000 to 350,000 people investing their money and bringing others on board for 15-percent to 40-percent commissions. Starting amount for investment: as little as 100 rupees ($1.83). Also: promises of land and holiday packages. The scheme collapsed, NDTV said, as some policies matured and the group couldn’t pay up.

The responsibility for stopping such schemes lies with the state government, not the regulator. See this excerpt from an article in The Hindu Business Line. While SEBI investigates “Collective Investment Schemes,” the paper reported, state governments regulate the “chit funds,” or group savings funds that the Saradha Group used in this case. And the investigation has taken plenty of time to get anywhere.

West Bengal politicians have taken less action, and are accusing each other of ignoring the problem instead. The Left Front blames the Trinamool Congress for helping this group to flourish, while the government of Chief Minister and Trinamool leader Mamata Banerjee castigates the Left Front for allowing “cheat funds” to exist. Trinamool has proposed a 10 percent tax on cigarettes to raise money for a Rs. 500 crore ($9.2 million – actually $92 million. Editor’s error.) investor relief fund.

“All political parties are involved, at least parts of it — that is, individuals. … They are of course to blame,” said economist Avirup Sarkar of the Indian Statistical Institute. “In West Bengal, lots of people have gained from such schemes and they have made fortunes. Their names will come out eventually. Now we see the usual blame game between political parties. That is not going to change the situation. Poor people have lost money and that is not going to come back.”

Nor are their jobs. At least 10 Saradha Group-owned newspapers and television channels in West Bengal and the neighboring state of Assam have shut down in the past month. Did the journalists know that they were financed by a Ponzi scheme?

“Yes, we knew,” said one newspaper journalist who lost his job when the papers closed. He declined to be identified to avoid souring his future job prospects. “But they were paying good money, and we never thought that they would wind up the media organizations so soon.”

Others – poor people – reportedly killed themselves after losing most of their money in the scheme. What drew them to it in the first place? Sarkar said that the typical reason is financial illiteracy. And a journalist who works in the Burdwan district of West Bengal, where two people killed themselves because of the scheme’s failure, said that the temptation is too great to resist.

“Poor villagers find it much easier to invest in these schemes as they do not require too much documentation work, unlike opening a bank account or an account with the local post office,” said the journalist, who declined to be identified. “Also, the high interest returns are a lure.”

While the Saradha story has made plenty of headlines, it is far from the only Ponzi scheme that has surfaced recently. In March, India’s corporate affairs minister Sachin Pilot told Parliament that there have been complaints against 87 companies across India over Ponzi schemes. As many as 73 of those were from West Bengal. Ten were Saradha Group accusations, leaving another 67 to tackle. With the time it took to figure out that anything was wrong, it seems like defrauding investors may remain a safe bet for a while.

(An employee counts Indian currency notes at a cash counter inside a bank in Kolkata June 18, 2012. Reuters photo: Rupak De Chowdhuri)

Comments
5 comments so far | RSS Comments RSS

This is painful to know “that there have been complaints against 87 companies across India over Ponzi schemes.” Illiteracy as it is dangerous, but financial illiteracy is lethal. And it is surely rampant in rural areas but semi-urban, urban areas are also caught in it , if not equally.

Posted by Snoopyjourno | Report as abusive
 

The crux of the story lies at the end of the first paragraph: ‘it looks likely that little will change after the drama ends.’

Posted by soumyads | Report as abusive
 

Very Good report….

Posted by biswabrata | Report as abusive
 

Extremely sad! Hopefully, poor people become more aware of such shams.The media can play a pivotal role in this. It has, after all, reached the most remote areas in the country. In ordinary circumstances I would have asked the govt to do such things, but given its arrogance and contempt for commoners, the less said about it the better.

Posted by Woman21 | Report as abusive
 

Saradha Realty ( West Bengal )is just one of the companies raising small deposits from investors. The number of such companies could actually be 700 or 800. The ones already under the scanner and that most people know is Mathura based Kalptaru Group. Kalptaru Group’s KBCL India Ltd is one of these. This company is operating Collective Investment Schemes (CIS) without registering itself for such activities with the regulatory authority. This company is not actually registered as chit funds but its activities are more in the nature of Multi-Level Marketing, collective investments or other money-circulation schemes which are broadly known as ‘ponzi’ schemes. Into the affairs of Mathura-based Kalptaru group and other such entities across the country, authorities should do well to conduct investigations and take action before the scams get big and a lot of investors lose money in the bust. Govt. of India and the State Govt. should focus its probe on violation of Collective Investment Scheme (CIS) norms by this group.
The first company of this group, KBCL India Ltd, started working in Mathura in 1995. This company is operating from Mathura, Uttar Pradesh. Authorities of Kalptaru group stated that M/s KBCL India Ltd is a public limited, listed company and is engaged in construction, development and management of agricultural land, townships, shopping malls, group housing society etc. in various states in India and did not run any collective investment scheme. Company is not working chit fund business. The concern relates to Real Estate but it is well known that the fact is different. Kalptaru group has more than 50 firms registered with the RoC (Registrar of Companies) for businesses across sectors including real estate, exports, automobiles, shopping mall, agro development, media, entertainment, education and publishers among others. Most of these companies are registered with names starting with ‘Kalptaru’, while there are also firms with other names. The preliminary probe into Kalptaru group’s Kalptaru Agro India Ltd in 2003, capital markets regulator SEBI said that the company is engaged in illegal money collection activities. SEBI has already passed an order against one group entity, Kalptaru Agro India Ltd, asking it to wind up all collective investment schemes and refund the money collected from investors in one month. Unfortunately public memory is very short and such fraudulent CIS schemes firms almost always get good patronage. Now govt. agencies would soon start its investigations into the activities of this group. M/s KBCL India Ltd. invited contributions to invest in land and allotted land to investors. The investors were given an option to withdraw the delivery of land as well as the returns promised. In other words, this company is conducting CIS activities under the garb of real estate operations. This company raises deposits in the disguise of advances for unknown real estate projects. Company offers many options: Fixed deposits, Monthly investment schemes, Single investment schemes, recurring deposits etc.Promoters of the company are allegedly siphoning the monies collected and are using a sales network comprising local persons who are offered hefty commissions, in a manner similar to Ponzi schemes. KBCL India Ltd is involve in illegal raising of deposits, especially in rural and semi-urban areas and duping of the gullible public with a promise of huge returns. The collapse of the Saradha Group in West Bengal has already claimed two lives—an agent and a depositor killed themselves towards the end of last week. The real estate projects appear to have emerged as favourite for entities operating such fraudulent schemes. Kalptaru group is planted with the money collected from hard earned money of poor and common people of India by promising huge returns in the projects proposed to be developed from the scratch through public money. It isn’t immediately known how much money the Kalptaru Group owes its depositors. According to some estimates, including by an working employee of the group, it could run into thousands of crores of rupees. We request to the government’s immediate intervention to recover money from this group and take the steps necessary to seize all assets of the Kalptaru Group. There appears to be a need to restrain the company from raising further money from investors as well as launching new schemes and direct this company to not dispose any of the properties or delineate assets of the scheme. Govt. should pass an order to wind up its existing collective investment schemes (CIS) and ban the company from diverting funds kept in its custody or deposited in any bank with immediate effect, as it had no Sebi registration. We request Sebi to issue an order against Kalptaru Group to stop taking “earnest money in equated monthly installments from the public for the purchase of land, because sthe market regulator viewed it as a collective investment scheme (CIS). The firm did not have the necessary license to pursue such a business. In fact, going by available evidence, Suspecting investor frauds in the projects being launched by Kalptaru Buildtech Corporation Ltd, capital markets regulator Sebi needs to probe Kalptaru Group for possible violations of Collective Investment Scheme regulations. Company lure investors into putting in their money for purchase of land and thereafter for development of projects and promise them huge returns at a later stage.
Incidentally, similar order against one entity of this group was issued in 2003 as well, but orders were not complied with so the regulator should take fresh and strict action against this whole group.
Saradha Realty ( West Bengal )is just one of the companies raising small deposits from investors. The number of such companies could actually be 700 or 800. The ones already under the scanner and that most people know is Mathura based Kalptaru Group. Kalptaru Group’s KBCL India Ltd is one of these. This company is operating Collective Investment Schemes (CIS) without registering itself for such activities with the regulatory authority. This company is not actually registered as chit funds but its activities are more in the nature of Multi-Level Marketing, collective investments or other money-circulation schemes which are broadly known as ‘ponzi’ schemes. Into the affairs of Mathura-based Kalptaru group and other such entities across the country, authorities should do well to conduct investigations and take action before the scams get big and a lot of investors lose money in the bust. Govt. of India and the State Govt. should focus its probe on violation of Collective Investment Scheme (CIS) norms by this group.
The first company of this group, KBCL India Ltd, started working in Mathura in 1995. This company is operating from Mathura, Uttar Pradesh. Authorities of Kalptaru group stated that M/s KBCL India Ltd is a public limited, listed company and is engaged in construction, development and management of agricultural land, townships, shopping malls, group housing society etc. in various states in India and did not run any collective investment scheme. Company is not working chit fund business. The concern relates to Real Estate but it is well known that the fact is different. Kalptaru group has more than 50 firms registered with the RoC (Registrar of Companies) for businesses across sectors including real estate, exports, automobiles, shopping mall, agro development, media, entertainment, education and publishers among others. Most of these companies are registered with names starting with ‘Kalptaru’, while there are also firms with other names. The preliminary probe into Kalptaru group’s Kalptaru Agro India Ltd in 2003, capital markets regulator SEBI said that the company is engaged in illegal money collection activities. SEBI has already passed an order against one group entity, Kalptaru Agro India Ltd, asking it to wind up all collective investment schemes and refund the money collected from investors in one month. Unfortunately public memory is very short and such fraudulent CIS schemes firms almost always get good patronage. Now govt. agencies would soon start its investigations into the activities of this group. M/s KBCL India Ltd. invited contributions to invest in land and allotted land to investors. The investors were given an option to withdraw the delivery of land as well as the returns promised. In other words, this company is conducting CIS activities under the garb of real estate operations. This company raises deposits in the disguise of advances for unknown real estate projects. Company offers many options: Fixed deposits, Monthly investment schemes, Single investment schemes, recurring deposits etc.Promoters of the company are allegedly siphoning the monies collected and are using a sales network comprising local persons who are offered hefty commissions, in a manner similar to Ponzi schemes. KBCL India Ltd is involve in illegal raising of deposits, especially in rural and semi-urban areas and duping of the gullible public with a promise of huge returns. The collapse of the Saradha Group in West Bengal has already claimed two lives—an agent and a depositor killed themselves towards the end of last week. The real estate projects appear to have emerged as favourite for entities operating such fraudulent schemes. Kalptaru group is planted with the money collected from hard earned money of poor and common people of India by promising huge returns in the projects proposed to be developed from the scratch through public money. It isn’t immediately known how much money the Kalptaru Group owes its depositors. According to some estimates, including by an working employee of the group, it could run into thousands of crores of rupees. We request to the government’s immediate intervention to recover money from this group and take the steps necessary to seize all assets of the Kalptaru Group. There appears to be a need to restrain the company from raising further money from investors as well as launching new schemes and direct this company to not dispose any of the properties or delineate assets of the scheme. Govt. should pass an order to wind up its existing collective investment schemes (CIS) and ban the company from diverting funds kept in its custody or deposited in any bank with immediate effect, as it had no Sebi registration. We request Sebi to issue an order against Kalptaru Group to stop taking “earnest money in equated monthly installments from the public for the purchase of land, because sthe market regulator viewed it as a collective investment scheme (CIS). The firm did not have the necessary license to pursue such a business. In fact, going by available evidence, Suspecting investor frauds in the projects being launched by Kalptaru Buildtech Corporation Ltd, capital markets regulator Sebi needs to probe Kalptaru Group for possible violations of Collective Investment Scheme regulations. Company lure investors into putting in their money for purchase of land and thereafter for development of projects and promise them huge returns at a later stage.
Incidentally, similar order against one entity of this group was issued in 2003 as well, but orders were not complied with so the regulator should take fresh and strict action against this whole group.

Posted by manish821 | Report as abusive
 

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