SEBI declares illegal money pooling as 'fraudulent'

New Delhi, August 13: To curb rising instances of public getting defrauded by money pooling schemes, capital market regulator SEBI has decided to declare illegal mobilisation of funds as a "fraudulent and unfair trade practice".

Besides, the Securities and Exchange Board of India (SEBI) has clarified that the existing list of activities coming under fraudulent and unfair trade practices can be further expanded whenever the need arises.

The decisions were taken by the Sebi board during its meeting in Mumbai on Monday.

Following Monday’s decision, all activities of money mobilisation through unauthorised Collective Investment Schemes (CIS) would face stronger penalties prescribed under the revised Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations.

The board has approved the "proposal to declare illegal mobilisation of funds without obtaining a certificate under the Sebi (Collective Investment Schemes) Regulations, 1999 as a fraudulent and unfair trade practice," according to an official release on Monday.

"This amendment has been made to impose deterrent adjudication penalties on unregistered CIS entities mobilising money," the release said.

The latest move comes against the backdrop of rising instances of fraudulent money pooling activities, including by a number of West Bengal-based groups such as Saradha, Rosevalley and Sumangal.

There have been also many innovative but illegal fund-raising schemes in the name of emu farming, goat rearing, cattle and butter, and holiday memberships.

Sebi has already got stronger powers to deal with all kinds of money pooling activities, including by unlisted companies, involving Rs 100 crore or more.

According to the release, the board also took note of the provisions in the ordinance promulgated last month to provide more powers to Sebi.

Meanwhile, the government has introduced a Bill in the Lok Sabha on Monday to amend the existing securities market laws.

The Securities Laws (Amendment) Bill, 2013, would replace an ordinance promulgated last month.

Besides clamping down on fraudulent money pooling schemes, the amended legislation would provide more powers in terms of carrying out search and seizure activities and set up special courts to expedite cases.

The Bill is to amend the Securities and Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956 and the Depositories Act, 1996.

"To protect the interests of investors and to ensure orderly development of securities markets, it has become necessary to enhance the powers of the Board," according to the Bill.

Sebi would also have powers to seek information, such as telephone call data records, from any person or entity in respect to any securities transaction being investigated by it.

The amendments, once in place, would clear the air over regulatory gaps and overlaps with regard to types of instruments used in raising funds.

Last month, the government had said the amendments would give Sebi the legal backing to clamp down on unscrupulous entities that are using newer methods to take gullible investors for a ride.

"... based on the experience gained over the years, it has become necessary to further strengthen the regulatory provisions to ensure effective enforcement of the securities market related laws while ensuring its orderly development," the Bill said.

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