Thousands of common people are cheated through Ponzi schemes every year. Saradha scam, Rose Valley scam, IMA jewelers and many other cases where thousands of small depositors were cheated by corrupt businesspeople are a shame for the business and banking culture of the country. Therefore the government aims to bring strong regulatory measures to lower the probability of such scams and strong provisions for the reimbursement to the cheated people.
Ponzi schemes are named after an Italian American businessman named Charles Ponzi. He promised to double the return of investment in 90 days but does not have any business model to do the same. The intention was to pay the old investors with the new investment coming in and then the one day when the investment surpasses the amount to be returned and then run away with all the money.
The numbers of cases of Ponzi schemes are growing exponentially in the country. In 2016-17 and 2017-18, the number of cases registered and investigated by RBI rose to 111.
The government has passed the Banning of Unregulated Deposit Schemes Bill, 2019 which seeks equitable distribution of money among depositors after attachment and selling properties of seamsters. The bill also seeks 180 days resolution of the case in court, after the depositors file one. “The Bill provides for attachment of properties/assets by the competent authority, and the subsequent realization of assets for repayment to depositors,” said a government release.
The Bill creates three types of offenses to protect the deposits of common people. The running of unregulated deposit scheme, fraudulent default in regulated deposit scheme and wrongfully pursuing in relation to unregulated deposit scheme have been declared punishable offenses in the bill.
An online database of the deposit takers will be created and it will be made mandatory for the deposit takers to inform the authority. A special officer will be appointed to deal with Ponzi schemes. “The Bill contains a substantive banning clause which bans deposit takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme. The principle is that the Bill would ban unregulated deposit taking activities altogether, by making them an offense ex-ante rather than the existing legislative-cum-regulatory framework which only comes into effect ex-post with considerable time lags,” said the government.
The Saradha and Rose Valley Ponzi scams are big scams involving many big names. These scams happened because there was no regulation to check and audit the balance sheet of these fraudulent companies. With the support of politicians, these companies flourished and looted the hard-earned money of poor people.
Many senior politicians from the ruling TMC in Bengal received support from the Saradha and Rose Valley group. The CBI arrested TMC MP Tapas Pal on 30th Dec 2016 and TMC MP Sudip Bandhopadhyay on 3rd January 2017 in connection with the alleged Rose Valley chit fund scam. Tapas Pal was one of the directors of the Rose valley group; Bandyopadhyay is accused of being a promoter of the Ponzi firm. When the TMC MP Sudip Bandyopadhyay was arrested, members of the TMC attacked the BJP headquarters in Kolkata which caused injury to several BJP workers. According to reports, the Rose Valley scam is of around 17,000 crores; the small depositors association the scam stood at 40,000 crores.
The bill will help in curbing scams like Saradha and Rose Valley which involves high profile politicians. The corrupt politicians could be punished quickly with the help of the new legislation to counter Ponzi schemes. The people involved in Saradha and Rose Valley Ponzi schemes have not been punished yet but with the help of this bill, people will be punished for wrongful activities.