SEBI seeks action against collective investment schemes

The market regulator will give names of 500 companies that collect money from investors illegally for real estate properties, plantation and agriculture industry, art funds, time-sharing schemes and multi-level marketing (MLM) schemes

New Delhi: Market regulator Securities and Exchange Board of India (SEBI) has decided to share names of over 500 companies, which have garnered money from investors in violation of its Collective Investment Scheme (CIS) rules with the Ministry of Corporate Affairs (MCA), reports PTI.

SEBI would also give the names of the directors of such entities to the MCA, so that necessary actions can be taken to prevent these companies and persons from being associated with any new company, a senior official said.

The Collective Investment Schemes, where an entity pools in money from investors for certain pre-specified purposes and later distributes the profits or income, come under the ambit of the Securities and Exchange Board of India (SEBI).

There are estimated to be more than 500 entities in the country that have undertaken CIS activities without complying with the SEBI regulations and the regulator has initiated necessary action against many of them in the past.

Many of these entities and their operators and directors tend to restart similar business under a new name and numerous investors are taken for a ride before they come under the Sebi scanner, the official noted.

SEBI has now decided to request the MCA to circulate the names of defaulter CIS entities and their directors among all the ROCs (Registrars of Companies) in the country to prevent them from being associated with any new company, he added.

SEBI is also of the view that a complete overhaul of the current CIS regulations was needed, as loopholes in the existing rules allow for the gullible investors being taken for a ride, the official said.

The capital market regulator will take up the issue of these regulatory gaps at the meeting of Financial Stability and Development Council (FSDC), which is chaired by Finance Minister and includes top financial sector regulators such as RBI Governor and SEBI Chairman.

While hundreds of the companies have engaged in the CIS activities in the country, just one such entity is registered with SEBI to undertake such kind of business.

Generally, the operators of such schemes offer impressive returns in their initial days to lure unsuspecting investors and then suddenly disappear after some time, leaving their investors in a lurch.

Some of the most common CISs are related to investments for real estate properties, plantation and agriculture industry, art funds, time-sharing schemes and multi-level marketing (MLM) schemes, among others.

As per SEBI data, more than one lakh investor complaints are currently pending with it in connection with such schemes, and the matter is sub-judice since long in most of the cases.

While SEBI is the regulatory authority for such schemes, a number of other government agencies and departments also govern similar investment products and a lack of clarity in this regard comes in the way of bringing the guilty to book.

Certain exemptions in the current regulations also leave scope for people to take a stand that their scheme is not a collective investment scheme and that they have got relevant approvals from the competent authorities.
SEBI has said that there was an urgent need to have one single principal regulator to deal with all the cases where pooling of money is taking place and investments are made.

The government had first decide to frame CIS regulations and named SEBI as a regulator in 1997, after a number of agro-based and plantation companies in 1990s started raising money from public through agro and plantation bonds.

Thereafter, it was made mandatory for all such companies to register with SEBI. The existing entities were also asked to get registered with SEBI, and those not being able to get a go-ahead were asked to wind up their operations.

As per SEBI data, 664 CIS entities had raised Rs3,518 crore in 1998-99. Out of these 664 CIS entities, 54 CIS entities wound up their schemes and refunded investors' money.

None of the companies that applied for registration at the time were found to be eligible for final registration as a Collective Investment Management Company under the SEBI (CIS) Regulations.

SEBI had issued directions to the remaining 610 entities directing them to refund the money collected under the schemes with returns due to investors as per the terms of the offer within a period of one month from the date of the Order.

Subsequently, another 21 CIS entities wound up their schemes and repaid the investors.

SEBI has said that the CIS regulations were incorporated at a time when large scale funds were mopped up by plantation and agro companies and investors lost money.

It is of the view that regulations have remained unaltered, although there has been a sea change in market dynamics of investment management activities since then.
The regulator has also sought tightening the definition of CIS activities, as the existing one leaves room for many entities to claim being outside its purview.
SEBI often receives complaints against certain CIS-type activities such as those of MLM companies, art funds, time sharing operators, but they claim being outside the domain of its regulatory authority.


2G Scam: ED registers money laundering case against Maran brothers

The case pertains to an alleged illegal gratification of about Rs550 crore allegedly received by the Maran brothers in the Aircel-Maxis deal

New Delhi: The Enforcement Directorate (ED) has registered a money laundering case against former Union Minister Dayanidhi Maran and his brother Kalanidhi in connection with the 2G spectrum allocation case, reports PTI.

The case, registered on Tuesday under the Prevention of Money Laundering Act (PMLA), pertains to an alleged illegal gratification of about Rs550 crore allegedly received by the Maran brothers in the Aircel-Maxis deal.

Mr Maran, the former Minster of Telecom, had quit from the Union Cabinet last year after allegations were made that he had favoured Malaysian firm Maxis over Aircel in grant of telecom licences in 2004-05.

Mr Maran had denied the allegations. The CBI too is probing Mr Maran and his brother and Sun TV managind director Kalanidhi in connection with these allegations.

The agency is also investigating the case for alleged contraventions of foreign exchange rules in this deal as it registered an Enforcement Case Information Report (ECIR), an equivalent of the FIR.

The agency has also registered another case in the 2G case, pertaining to the NDA regime and has named former telecom secretary Shyamal Ghosh, then deputy director general J R Gupta and few telecom companies for alleged irregularities in the grant of additional 2G spectrum during 2001-03.

ED will now record the statements of the individuals named in its ECIR.


Thomas Cook starts stake sale in Indian arm

Thomas Cook Group has been under a financial stress and wants to sell over 77% stake of its Indian unit

New Delhi: Travel services provider Thomas Cook Group Plc has initiated a formal sale process of its 77.1% stake in Thomas Cook India Ltd (TCIL), reports PTI.

In a filing to the BSE by Thomas Cook India said numerous third parties are interested in buying the stake.  "Following a number of unsolicited informal expressions of interest, we have decided to seek formal offers for our stake in Thomas Cook India," the filing said quoting Thomas Cook Chief Executive Sam Weihagen said.

If the offers are attractive then the company will consider selling the stake and use the proceeds to continue to strengthen the group's balance sheet, he added.

Thomas Cook Group has been under a financial stress and last year it sold off Spanish hotel chain Hotels Y Clubs De Vacaciones to Grupo Iberostar for 72.2m euros.

On the Indian business, Mr Weihagen said, "TCIL is a strong business, operating in an attractive market. Both the business and the market are growing and Thomas Cook will only sell its stake if a compelling offer is received."

TCIL provides foreign exchange and travel services in 70 Indian cities across 153 owned locations.

The company employs 2,700 people in India and has partner network of 110 'Gold Circle Partners' and 184 preferred sales agents in over 100 cities in the country. It also has operations in Mauritius and Sri Lanka.


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