The massive money, which is raised surely shows somewhere on the balance sheet of the company, filed regularly with the MCA. The primary recipient of the information about these companies is the MCA, and surprisingly the MCA is the least proactive in the entire process of bringing these perpetrators to regulatory focus, sooner before tonnes of money vanish
As the bottom-of-the-pyramid population continues to fret about having lost one’s life savings in the West Bengal “chit funds”, it is interesting to find politicians promising new stringent laws against such funds. In fact, law-making is the least of the reasons for such schemes to have flourished in the state. However, as political connections of one of many that have gone bad are exposed, the easy face-wash for the politicians is in law-making, to cover-up what is quintessentially an implementation issue. The reality is that we are not short of such laws—in fact, we have a plenty of laws that prohibit such schemes and impose sternest penalties for the perpetrators of such scams. But if a Rs22,000-crore scheme questions the very institutions that define our system—Supreme Court, SEBI, or whoever else—there is little surprise that the only succour for political face-saving is in law-making. And this is what we have done over the decades—as the write up below shows.
This article gives a quick overview of the laws regarding “chit funds” or devices of sourcing public deposits.
First of all, the West Bengal “chit funds” are not chit funds at all. Chit funds are a different structure altogether. Chit funds are mutual credit groups where money circulates among the group members, and the monthly contributions of the chit members are received circularly by one of the members who bids for the same at the highest interest rate or lowest “net present value”. Chit funds are perfectly legal, if they are registered under the Chit Funds Act, 1982, and run under the provisions of the law. The several names that keep popping up in West Bengal are not chit funds—these are collective investment schemes or public deposit schemes which on the face of it do not fall under any law, as they are structured so as to be neither a “public deposit” nor a “collective investment scheme”. But that facial structure is so gullible that any regulatory investigation may easily expose that these schemes were effectively nothing but public deposit schemes.
The evolution of regulatory structure in India is a rare case of human learning—we have burnt our fingers every time to learn that the fire is too hot to handle. So, every scam brought a law; in essence, the law is the edifice built on scams and not on intuition.
So, with all these laws, how to scamsters still end up raising several thousands of crores? Obviously, so much money is neither raised overnight, nor raised silently enough, as there is a massive machinery of agents who raise the money from the very bottom of the population pyramid. Each scamster innovates an ingenious device, but none of these devices are not iron-clad to avoid regulatory action, provided there was a will power.
Here is an inclusive inventory of the schemes currently in use:
No matter what is the device used, the common thread in each of these schemes is that the flow of new ‘depositors’ must keep coming in, because the only source from which maturing deposits could be serviced is by inflows from new depositors. Money is initially raised at hefty interest rates, and with attractive periodic prizes, gifts, gala parties, and so on. The agents who mobilise the deposits are given hefty commissions, because the structure essentially relies on a highly incentivised structure of brokers or agents, who reach right to the doors of the depositors to collect deposits. The cost of interest, plus the agency commissions, the luxurious spendings on so-called depositor prizes, and add to all this the lavish remunerations of the promoters themselves—all adds to a huge cost of interest, say, about 25% to 30%, which no lawful business may produce. It is not that these promoters are blue-eyed investors who know tricks of investing—so, they end up investing money in illiquid properties, resorts or hotels.
Now, the only way to keep servicing investors is that new depositors must flow in, so that old depositors can be repaid. That is, the base of the depositor pyramid has to continue to expand so that those up in pyramid can be paid—this is what Ponzi schemes are all about. This is what we call “tiger riding”.
Soon, the ride comes to and, and guess what happens at the end of any tiger ride! In the process, thousands of gullible investors have lost their life savings.
As hundreds of crores are raised though tens of thousands of agents, surely enough the exercise is not invisible to the regulatory eye. The massive money which is raised, irrespective of the label, surely shows somewhere on the balance sheet of the company, which is filed regularly with the MCA (ministry of corporate affairs). The primary recipient of the information about these companies is the MCA, and surprisingly, it is the MCA which is the least proactive in the entire process of bringing these perpetrators to regulatory focus, sooner before tonnes of money vanish.
No, it certainly is not the lack of laws that allows these scamsters to rob people of hard-earned money. It is clearly an implementation issue.
ProPublica had reported that the FDA allowed drugs to stay on the market despite the fact that the research underpinning their safety and efficacy was tainted by fraud. New information shows that even after the FDA had cited the lab for falsifying data, the agency issued at least one brand new approval to a drug tested there
Last week, ProPublica reported that the Food and Drug Administration (FDA) allowed dozens of medications to stay on the market, even though the research designed to prove their safety and effectiveness was undermined by "egregious" violations at a major pharmaceutical research laboratory in Houston. New information shows that even after the FDA had cited the lab for falsifying data and other misconduct, the agency issued a brand new approval to a drug tested there.
The FDA has refused to reveal the names of any of the approximately 100 drugs affected by the fraud at the Houston lab of the firm Cetero Research, saying that to do so would reveal confidential commercial information. ProPublica was able to identify five of those drugs, and now we have found a sixth. This one was approved after the agency had already cited the Houston lab for misconduct.
The drug is a generic version of Tussionex, which combines a long-acting narcotic cough suppressant with an anti-allergy medication. Manufactured by TrisPharma, the drug has a tongue-twisting chemical name: hydrocodone polistirex/chlorpheniraminepolistirex.
ProPublica discovered that both of the clinical trials used to show that the generic is equivalent to the name brand — a key requirement for FDA approval — were analyzed in May and June 2009 at the Houston lab of the firm Cetero Research. The company, which conducted research for scores of pharmaceutical companies, has acknowledged that chemists at its Houston lab committed research fraud, though it says the misconduct was limited to a handful of employees and that none of their tests have so far proven to be wrong or inaccurate.
Cetero filed for Chapter 11 bankruptcy last year and emerged with a new name, PRACS Institute. PRACS, in turn, filed for bankruptcy earlier this year.
The FDA got wind of problems at Cetero Houston in June 2009 when, prompted by a whistleblower, the company alerted the agency of potential wrongdoing.
On May 3, 2010, three FDA agents came to inspect the lab. The facility’s president turned over eight flatbed carts double-stacked with file boxes and admitted that much of the lab’s work was fraudulent, saying, “You got us,” lead agent Patrick Stone recalled. (The lab’s president declined to comment.)
On May 7, the FDA issued an inspection report that cited data falsification and other laboratory violations at the facility during the time its chemists conducted the tests for the TrisPharma drug.
But five months later, in October 2010, the FDA approved Tris' drug for sale in the United States.
The FDA continued to inspect the Houston lab, and in July 2011, the agency called the lab’s misconduct so “egregious” and pervasive that more than five years of tests conducted at the lab were potentially “unreliable.” The agency asked pharmaceutical companies to repeat or reanalyze any tests conducted there during that time if they had helped win drug approval. The FDA did not pull any drugs off pharmacy shelves, despite the fact that dozens were approved on data the agency now said was questionable.
In April 2012 the FDA relaxed its requirements. The agency announced that studies analyzed at Cetero Houston between March 2008 and August 2009 — the time period in which tests for the TrisPharma drug were conducted — would not need to be redone but instead would require only a "verification of data integrity by an independent third-party audit."
Tris said it hired a consultant to perform the audit and it “came back 100 percent clean," Groner said. "Something could have happened, but in our case, nothing did." He said Tris submitted the audit to the FDA in the second quarter of 2012.
The FDA has reviewed the audit and found it “acceptable,” an agency spokesperson wrote in an email. “Our earlier determination that this product meets FDA standards was upheld.” She declined to add any information or answer more specific questions.
The main point of that audit was to look for red flags that researchers might have cooked the books, said Scott Groner, TrisPharma’s Director of Regulatory Affairs and Compliance.
The Cetero researchers ran blood samples through a machine known as a mass spectrometer. By examining the timestamps of these runs, Groner said, the auditors could tell whether or not a rogue researcher would have been able to tamper with the results of the experiment. "If there was some manipulation, there would have to be some down time" for the researcher to fiddle with the samples or the machine in order to produce the desired result, he explained. Auditors, he added, “were looking for many other things. Were [experiments] done late at night, on weekends?"
While the FDA declined to comment on the specifics of the Tris Pharma case, the agency has previously said that it ran a risk assessment and concluded that the chances were low that drugs tested at Cetero Houston were unsafe. The fact that the FDA has since found no problems with drugs tested there “confirmed” that risk assessment, a top FDA official said.
As of last week, the agency said it had completed reviewing 21 out of 53 submissions it had received from pharmaceutical companies that had medications tested at Cetero Houston. It also said a few companies had not yet submitted new data or audits on drugs tested there.
According to SEBI, the entity had colluded with the company’s directors and other brokers to execute cross trades for its clients that artificially raised the price of the scrip from Rs2 to Rs170.20 without any corresponding change in the fundamental of the company
Rajeev Kumar Agarwal, whole-time member of the Securities and Exchange Board of India (SEBI) has passed an 5th April 2013 suspending the registration certificate of stock broker M Bhiwaniwala & Company, belonging to the Calcutta Stock Exchange, for three months for its alleged role in fraudulent trading in shares of GR Industries and Finance.
After considering the facts and circumstances of the case, SEBI has suspended “certificate of registration of the noticee (M Bhiwaniwala & Co) for three months”, the regulator said in an order.
"The (suspension) order will come into force immediately on expiry of 21 days from the date of order,” the market regulator said.
SEBI had conducted investigation between 1 January 2004 and 28 February 2005 into the irregular trading in the scrip of GR Industries and Finance. According to SEBI, the entity had colluded with the directors of the company and other stock brokers and deliberately executed the cross trades for its clients that generated artificial volume and artificially raised the price of the scrip from Rs2 to Rs170.20 during the period without any corresponding change in the fundamental of the company.
“...the noticee had indulged in fraudulent and unfair dealings and had not taken due care and diligence in observance and compliance of the statutory requirement in conduct of its business as a stock broker,” the order said.