SEBI gets more power to tackle Ponzi, MLM schemes through Ordinance

The government used ordinance route to amend various SEBI Acts due to rising instances of people getting defrauded by fraudulent money-pooling, Ponzi and MLM schemes

The Indian government said, since fraudsters are adopting innovative ways of pooling funds from gullible investors, it becomes necessary to provide greater powers to market regulator Securities and Exchange Board of India (SEBI) to tackle this growing menace of Ponzi schemes.


Justifying promulgation of ordinance to amend various SEBI Acts between August and September, the government said this was done to remove a lacuna that allowed fraudsters to escape regulatory actions.


The amendments to existing laws would provide the SEBI greater powers to respond to the “growing menace of illegal deposit taking and Ponzi schemes,” the Government informed the Parliament.


The ordinance came amid rising instances of people getting defrauded by fraudulent money-pooling schemes.


With the amendments, SEBI would have powers to access call records as well as carry out search and seizure, among others.


With regard to investigations, SEBI would have powers for seeking information and records from any entity, including bank or any other authority established or constituted under Central or State Acts.


Among others, special courts are proposed to be set up for speedy trial of offences under the SEBI Act.


The Securities Laws (Amendment) Ordinance, 2013, was first promulgated on 18th July.


Later, Securities Laws (Amendments) Bill, 2013, was introduced in the Lok Sabha and then referred to the Parliamentary Standing Committee on Finance. Since the Bill was not passed, the ordinance was promulgated for the second time on 16th September by the President.


Meanwhile, SEBI has proposed detailed guidelines for its new powers, including for the procedure to be adopted for search and seizure operations.


The proposed norms focus on detailed procedures that need to be laid down relating to the procedural safeguards during different stages of search and seizure and the rights of those persons subjected to search and the obligations of the authorised persons.




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Unquoted: Kunststoffe Industries

Share price of Kunststoffe Industries zoomed 251%, but regulators couldn’t care less about the facts staring in their face.

Kunststoffe Industries is supposedly into ‘polymer processing’ and has a plant in Daman. In 2007, it was declared sick by the BIFR. Earlier, in 2006, it had been issued a demand notice by Mumbai Debts Recovery Tribunal to pay up over Rs1 crore to Bank of Baroda. A draft rehabilitation scheme was prepared which has still not been cleared, according to the company’s 2012 annual report. The company has also not complied with shareholding pattern norms since December 2008. Yet, it continues to be listed, with poor fundamentals.

Its net sales for the past four quarters were: Rs34 lakh (December 2012), Rs28 lakh (March 2013), Rs45 lakh (June 2013) and Rs54 lakh (September 2013). Its net profit has been erratic and poor: net loss of Rs6 lakh (December 2012), Rs20.06 crore (March 2013), Rs4 lakh (June 2013) and Rs10 lakh (September 2013). This did not prevent its share price from zooming 251% between 24 June 2013 and 29 November 2013, from Rs5.1 to Rs17.90. The regulators couldn’t care less to the facts staring in their face.


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