According to a PIL filed in the apex court chit fund companies are collecting money from the public in violation of laws and this need to be checked
The Supreme Court on Tuesday issued notices to the union government, Reserve Bank of India (RBI) and market regulator Securities and Exchange Board of India (SEBI) seeking their response on chit fund issues.
A Bench headed by Chief Justice P Sathasivam asked the government and the regulators to file their response within four weeks on a public interest litigation (PIL) for putting in place a proper mechanism to regulate the functioning of chit funds in the country.
Advocate Prashant Bhushan, appearing for ‘Humanity Salt Lake’, an NGO, submitted that there has been inaction on the part of the Government in regulating chit funds resulting in multiple scams across the country.
He submitted that chit fund companies were collecting money from the public in violation of laws and that needed to be checked.
The petitioner referred to various chit fund scams including the recent multi-crore Saradha chit fund scam in West Bengal and pleaded before the apex court for its intervention in the matter to prevent the recurrence of such cases.
After hearing the submissions, the Bench agreed to look into the matter.
In India, laws and regulations are in place but implementation is abysmal. The enforcement machinery is extremely toothless. The miniscule penalties that are levied are not at all commensurate with the offence and ill gotten gains
One fails to comprehend the soft peddling attitude of the market regulator Securities and Exchange Board of India (SEBI) and the Ministry of Corporate Affairs (MCA) that are adopting ‘kid gloved’ treatment to all kinds of insider trading and illegal activities so blatantly and overtly practiced by some of the big ticket operators here. On the other hand, the US authorities move toughly and succeed in nailing against the likes of SAC Capital that once reigned the hedge fund world (founder Steven A Cohen was listed by Forbes as being worth $8.8 billion), Rajat Gupta and Enron.
Earlier, Rajat Gupta, former director of Goldman Sachs was ordered by the court to pay a hefty $13.9 million fine along with a life time bar from associating with brokers, dealers and investment advisors, permanently enjoining him from future violations of the securities law and barring him from serving as director or officer of any public company. This was triple the benefit hedge-fund manager Raj Rajratnam had obtained from the tips Gupta allegedly passed on to him. He is already facing a $5 million fine and a two year prison sentence in a parallel criminal insider trading case.
This comes at a time when both the Justice Department as well as the Securities Exchange Commission (SEC) in the US have been acting really harshly on all the insider trading violators. In the case of SAC Capital, it became the first hedge fund to plead guilty to insider trading after an extensive six-year long dragnet by the regulators who issued stern warnings and imposed fines that totalled $1.8 billion. The Guardian & AP report says, “SAC has agreed to a passel of penalties, which follow a July indictment that ordered a $900 million fine and forfeiture of another $900 million to the federal government, though $616 million that the SAC companies have agreed to pay to settle parallel actions by the SEC… SAC also agreed to accept a 5-year probation period in which any employee seeking to start a new investing business would require government permission in addition to agree to shut down its advisory business that accepts money from outside investors”.
April Brooks, the head of the New York office of the Federal Bureau of Investigation (FBI) is quoted as calling the insider trading at SAC “substantial, pervasive and on a scale without known precedent... nothing short of institutional failure... a work culture at SAC that permitted, if not encouraged insider trading.” The evidence against SAC was so overwhelming and voluminous that it included electronic and instant messages, and court-ordered wiretaps and consensual recordings. She has gone on to indicate that US government regulators, including the Department of Justice, the FBI and the SEC plan to use SAC as a lesson to other fund managers, adding “How your employees make their money is just as important as how much they make.”
The prosecutors’ case is that SAC earned hundreds of millions illegally from 1999 through 2010 when its portfolio managers and analysts traded on inside information from at least 20 known public companies. Preet Bharara, the US attorney for the southern district of New York said, “SAS trafficked in inside information on a scale without precedent in the history of hedge funds”. Half of the about $15 billion in assets that SAC managed as of early this year is said to belong to Cohen and his employees and the rest clients’ money. The SEC, in a separate case, has sought to ban Cohen from the entire securities market for failure to prevent insider trading.
However, in India, the laws and regulations are in place, but implementation is abysmal. The enforcement machinery is extremely toothless. The miniscule penalties that are levied are not at all commensurate with the offence and ill gotten gains. The debarment mechanism is slow and ineffective. So far the biggest ticket Sensex biggies caught red handed have been dilly dallying to buy time when they ought to coughed up crores like the billions penalised by the US Regulators. It is time they bare their teeth a la SEC and US Justice Department.
(Nagesh Kini is a Mumbai-based chartered accountant turned activist.)
SEBI's found various SMSs circulating in the market mentioning buy recommendation for SMS Techsoft were used by its promoters and directors to offload the company shares
Market regulator Securities and Exchange Board of India (SEBI) has barred 37 entities including Rajesh Mangilal Ranka, SMS Techsoft (India) Ltd, the company’s three promoters, V Jagdish, Akash Jagdish Vital and Anitha V Jagdish as well as three independent directors, Dashrathkumar Khatri, Dilipbhai Gajjar and Devraj Pera Naidu from accessing securities market.
SEBI said it had, suo moto, carried out an examination in the scrip of SMS Techsoft in view of various SMSs circulating in the market during February-March 2013 mentioning therein buy recommendation for the scrip of SMS Techsoft. The probe found that the promoters and directors of SMS Techsoft were acting in concert with one Rajesh Ranka by issuing new equity shares of the company through preferential allotment to certain connected entities without receipt of full consideration. These entities had offloaded the shares through a fraudulent manner.
During the examination, SEBI said it found SMS Techsoft issued 3 crore shares to 31 entities, including three promoters, who are related to Rajesh Mangilal Ranka, that too when Ranka in 2010 was barred by the market regulator for two years.
"The sequence of events and pattern of transactions in this case prima facie indicate that the company, its promoters/directors along with the Ranka Group, by falsely portraying the transactions as a genuine preferential allotment and by creating artificial volume the company, adopted fraudulent device and artifice to defraud the genuine shareholders of the company," SEBI said in the order.
Earlier in August, SEBI had passed an order in a separate case where action was taken against persons luring investors through SMSes with promise of daily returns of up to Rs75,000 through mobile messages.
While in the earlier case the investors were being lured for unauthorised investment products, the present case pertains to promoters of a listed company being involved as well with the spread of SMSes.