SEBI seeks overhaul of ‘collective investment scheme’ rules

 

While SEBI is the regulatory authority for collective investment 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, a SEBI official said

New Delhi: Market regulator Securities and Exchange Board of India (SEBI) has sought a complete overhaul of the current regulations for ‘collective investment schemes’, as it fears that loopholes in current rules allow for gullible investors being taken for a ride, reports PTI.

In a ‘collective investment scheme (CIS)’ the payments are pooled in by the investors for certain pre-specified purposes and profits or income are later shared among them.

However, there have been numerous cases of investors being cheated in the name of CISs and in many cases the operators of these schemes disappear after some time and the investors are left in a lurch.

A senior official at SEBI said that more than one lakh investor complaints are currently pending with it, and in most of the cases the matter is sub-judice since long.

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, the official added.

Some of the most famous CISs are related to investments for real estate properties, plantation and agriculture industry and art funds, among others.

In a board memorandum submitted during its last meeting on 3rd January, SEBI said that “it is clear that certain individuals/companies are able to raise money from gullible individuals by taking advantage of the loopholes in the legal provisions and also taking advantage of lack of clarity about roles of different agencies like MCA, SEBI, RBI, state governments, registered co-operative societies, etc.”

SEBI further told its board, which includes nominees from the MCA (ministry of corporate affairs), finance ministry and RBI, that 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 licenses/approvals from the competent authorities.”

“There appears to be a need to bring this matter under one principal regulator to deal with all cases where pooling of money is taking place and investments are being made,” SEBI said.

It further said that various exemptions also needed to be either completely removed or drastically pruned and “in case of pruning, there is need to provide criteria such as maximum number of investors or the minimum amount intended to be raised beyond which all have to get registered with the principal regulator.”

As per SEBI, there is only one entity registered with SEBI as a collective investment management company, but it has not launched any scheme as yet.

On the other hand, as many as 32 cases are currently under examination for applicability of SEBI (CIS) Regulations, while there are 1.09 lakh complaints pertaining to CIS.

“With regard to these complaints, it may be noted that since most of the CIS related cases are currently sub-judice, the redressal of such complaints depends on the outcome of these cases,” SEBI said.

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, 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 the money to the investors.

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, 21 CIS entities wound up their schemes and repaid the investors. Hence a total of 75 CIS entities had wound up their schemes and refunded the money to investors.

In 19 cases, courts had imposed stay orders/ appointed official liquidators/administrators.

Against the remaining entities that failed to wind up their schemes and repay the investors, SEBI took actions such as prosecution, sough their winding up and initiation of criminal proceedings.

Some of the CIS cases listed out by SEBI include an entity that claimed to be involved in the sale of trees to investors whereas in reality it was having collective investment schemes in the guise of this business.

In another case an entity had invited contributions to invest in land and allotted land to investors.

SEBI 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.

“While there has been a change in market dynamics of investment management activities over a period of time, the regulations have remained constant.

“Moreover, the definition of CIS is broad in nature leaving room for many activities to fall under the purview of CIS Regulations. Hence, re-examination of CIS regulations may be considered to clearly specify its scope,” it noted.

The regulator also said that it often receives complaints against certain activities such as multi-level marketing (MLM) companies, art funds, time sharing schemes or arrangement that claim that they do not come under the domain of any regulatory authority.

 

User

SEBI levies Rs10 lakh fine on a person for fraudulent trade

SEBI’s investigations had revealed that certain entities transacted in the shares of Adani Exports in a fraudulent manner that led to creation of artificial volume and price rise in the scrip. Saumil A Bhavnagari and his V&S Intermediaries was one such intermediary, the market regulator added

Mumbai: The Securities and Exchange Board of India (SEBI) has imposed a fine of Rs10 lakh on Saumil A Bhavnagari of V&S Intermediaries for indulging in fraudulent and unfair trade practices while dealing in the scrips of Adani Exports, reports PTI.

“After considering all the facts and circumstances of the case... hereby impose a monetary penalty of Rs10 lakh under Section 15 HA of the SEBI Act on the Noticee (Saumil A Bhavnagari),” SEBI said in an order.

The section deals with penalty for fraudulent and unfair trade practices.

SEBI had earlier conducted investigation regarding the buying, selling and dealing in the shares of Adani Exports (AEL) between 9 July 2004 and 14 January 2005 and again between 1 August 2005 and 5 September 2005.

The price of the scrip of AEL witnessed wide fluctuations during the two periods.

The role of the main brokers and clients who had traded heavily during the period under investigation in the scrip of AEL was scrutinised.

The investigations had revealed that certain entities transacted in the shares of the company in a fraudulent manner that led to creation of artificial volume and price rise in the scrip.

Mr Bhavnagari and his V&S Intermediaries was one such intermediary.

SEBI had in June 2008 issued a show cause notice to Mr Bhavnagari to which a reply was sent.

After considering all the facts, the regulator said that that the trades made by Mr Bhavnagari were fictitious.

It said the trading pattern of the noticee, by which he created a very large volume in the scrip with select counter-party clients, proves that Mr Bhavnagari had executed trades which did not result in transfer of beneficial ownership but merely created artificial volume in the scrip.

 

User

SEBI disposes of proceedings against three brokerages

 

After considering all the facts of the case and going through the replies sent by the brokerages to the notices, SEBI said the exposure provided by them to their clients was as per the policy followed by them and no exceptions were seen to have been made

Mumbai: The Securities and Exchange Board of India (SEBI) on Tuesday disposed off proceedings against three brokerage firms, including Geojit BNP Paribas Financial Services, in a case relating to trading in the scrips of RTS Power Corporation, reports PTI.

In three separate orders, SEBI disposed of case relating to Geojit BNP Paribas Financial Services, Destomonies Security Pvt Ltd and Networth Stock Broking.

“Considering the facts and circumstances of the case...

do not find the instant matter fit for imposition of penalty in terms of Section 15 HB of SEBI Act and dispose of the proceedings accordingly,” SEBI said in identical orders.

Section 15 HB deals with penalty for contravention where no separate penalty has been provided in cases of failure to comply with any provisions of the SEBI Act.

SEBI had earlier conducted investigation in trading in the scrip of RTS Power Corporation at the BSE for the period 1 September 2008 and 11 February 2009.

It had received complaints that some individuals bought shares of RTS Power in February 2009 and failed to fulfil their respective pay-in-obligations.

On analysing the KYCs (know your customers) obtained from various trading members, it was observed that the three brokerage firms trading on behalf of some of the individual clients allowed huge positions within one month of registration with them even though the annual income was as below as Rs1 lakh.

“It was alleged that the exposure given to the newly registered clients considering their financial strength indicated a failure of risk management at the noticee’s end,” SEBI said, adding that the brokerage firms were alleged to have failed to exercise due care and abide by code of conduct under SEBI regulations.

In December 2010, the regulator issued separate show-cause notices to all the three firms.

After considering all the facts of the case and going through the replies sent by the brokerages to the notices, SEBI said the exposure provided by them to their clients was as per the policy followed by them and no exceptions were seen to have been made. 

It also found that the noticees allowed the clients to trade only after the cheques got cleared and exposure was given after the clients had sufficient credit balance.

 

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)