Govt Notifies Rules for Banning Ponzi Schemes, Unregulated Deposits under BUDS Act
The ministry of finance has notified the Banning of Unregulated Deposit Schemes (BUDS) Rules, 2020 from 12 February 2020 that provide for a comprehensive mechanism to tackle illicit deposit taking activities and Ponzo schemes, says a report from LawStreetIndia.com, the corporate law portal of TaxSutra.com.
 
The Banning of Unregulated Deposit Schemes Act, 2019 was notified on 21 February 2019, for providing a comprehensive mechanism to ban unregulated deposit schemes, other than deposits taken in the ordinary course of business, and to protect the interest of depositors. The Bill was introduced in 2015 as Banning of Unregulated Deposit Schemes and Protection of Depositors’ Interests Bill. 
 
The BUDS rules define the term 'competent authority' as an authority appointed by the appropriate government under Section 7 of the BUDS Act, according to which the authority has the same powers as vested in a civil court under the civil procedure code (CPC) while conducting investigation or inquiry in respect of offences under the Act.
 
For provisionally attaching a deposit-taker's property, the competent authority would consider any complaint against the promotion or operation of an unregulated deposit scheme, whether the complainant is a depositor in the said unregulated deposit scheme or not, the rules say.  
 
However, to make the attachment absolute, the competent authority will have to file an application before the designated court. The rules also outline procedure to be followed by the designated court, and lay down the material to be searched by the officer-in-charge of a police station for investigating into any offence under the BUDS Act.
 
The rules further state that the designated authority would operate a central database to the public, containing information relating to deposit-takers, including a list of deposit-takers operating in India, the extent and areas of their operation. 
 
Importantly, as per the rules, the government can direct any newspaper or publication to a full and fair retraction, unequivocally withdrawing any offer, promotion or inducement made earlier in any advertisement, statement or information.  
 
"The Government shall direct the owner of any newspaper or other publication of any nature either in print or in electronic form, to publish a full and fair retraction, unequivocally withdrawing any offer, promotion or inducement made earlier in any advertisement, statement or information to any person to become a member of any Unregulated Deposit Scheme," the rules say.
 
You may also want to read...
 
 
 
  • Like this story? Get our top stories by email.

    User

    ED move in Rose Valley case spells trouble for Shah Rukh Khan's wife Gauri
    What could spell trouble for Bollywood superstar Shah Rukh Khan's wife Gauri Khan and actress Juhi Chawla's husband Jay Mehta, the Enforcement Directorate (ED) has attached Rs 70 crore bank accounts of Knight Riders Sports (KRSPL) and St. Xavier's College, Kolkata, and others in connection with the Rs 17,520 crore Rose Valley chit fund scam probe.
     
    A senior ED official said the agency had attached properties of various companies and individuals who received funds from the Rose Valley Group. Rs 16.2 crore bank accounts of Multiple Resorts, St. Xavier's College and KRSPL have been attached under the Prevention of Money Laundering Act (PMLA).
     
    With the recent attachment, value of properties seized in the Rose Valley Group cases has reached around Rs 4,750 crore. 
     
    St. Xaviers College and KRSPL had received payments from the bank accounts of the Rose Valley Group, the official said.
     
    Besides Gauri Khan and Mehta, Venky Mysore is also one of the directors of KRSPL. Mysore is also the CEO of the Indian Premiere League (IPL) team Kolkata Knight Riders (KKR), owned by Red Chillies Entertainment and promoted by Shahrukh Khan.
     
    In October 2019, the ED questioned Mysore as the Rose Valley Group had sponsored the IPL team for two years. 
     
    It had also questioned Shahrukh Khan in 2015 in connection with the alleged Foreign Exchange Management Act (FEMA) violations in selling around five million KRSPL shares at an undervalued rate to Mehta.
     
    During the ED and the Central Bureau of Investigation (CBI) probe into the Rose Valley Group scam, several prominent Trinamool Congress (TMC) leaders, including Sudip Bandopadhyay (MP) and Tapas Pal (MLA) have been interrogated, arrested and jailed. Bandopadhyay and Pal are on bail.
     
    The ED has also questioned many Bangla movie personalities, like Rituparna Sengupta and Prosenjit Chatterjee for acting in films funded by Gautam Kundu, Rose Valley Group promoter and Director. Kundu, arrested in March 2015, is in judicial custody.
     
    Besides the bank accounts, the ED has also attached 24 acres of land at Ramnagar and Mahishdal in the Purba Mednipur district of West Bengal, one acre land at Jyoti Basu Nagar in Kolkata, one flat at Dilkap Chambers in Mumbai and one hotel of the Rose Valley Group.
     
    The ED had registered a money laundering case in 2014 on the basis of FIR filed by the West Bengal Police and the CBI against the Rose Valley Group of Companies. The Rose Valley ponzi scheme was unearthed in 2013. 
     
    The group allegedly floated 27 companies to run various schemes and collected Rs 17,520 crore from depositors in West Bengal, Assam and Bihar.
     
    During the probe it was found that the Group collected more than Rs 17,520 crore from people across India by luring them to deposit funds on the false promise of high return/interest. Of this, Rs 10,850 crore was refunded. The remaining Rs 6,670 crore is unpaid, which constitutes the proceeds of crime.
     
    Earlier the ED had identified and attached under the PMLA Rs 4,680 crore properties, which included several luxurious resorts, hotels, vehicles, flats, lands, gold and jewellery.
     
    The ED has filed multiple charge sheets in the courts in Kolkata and Bhubaneswar in this case.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  • Like this story? Get our top stories by email.

    User

    COMMENTS

    Ramesh Poapt

    3 weeks ago

    will the truth prevail or will go to dustbean?!
    there may be many more like the above.

    5 Things MLMs Need to Worry About after FTC’s Action against SBH
    The US Federal Trade Commission (FTC) recently announced that it had secured an ex parte temporary restraining order (TRO), asset freeze and appointment of receiver against Nevada-based MLM Success by Health (SBH), its founder and CEO Jay Noland, his wife and two other SBH employees based on allegations that they were operating a pyramid scheme. The company, which sold coffees, teas and nutraceuticals, is said to have paid its approximately 5,000 distributors about $200 on average while paying $1.35 million to the four individuals defendants named in the complaint.
     
    SBH’s CEO is no stranger to the FTC. Labeling Noland a “serial pyramid scheme promoter,” the FTC details in its TRO papers how, 20 years ago, Noland used “false promises of substantial income to enroll consumers in a separate pyramid scheme,” Netforce Seminars. The FTC’s motion goes on to state that Noland and his wife were tipped off to the agency’s investigation by one of their banks, and, as a result, the couple left the country this past summer and set up shop in Uruguay.
     
    While SBH was certainly not a well-known or sizeable MLM, the FTC’s action against it has valuable lessons that the direct selling industry needs to heed. Moreover, the commission’s pleadings, evidence and documentation clearly lay out the blueprint for how it will go about prosecuting other alleged pyramid schemes, like Neora (aka Nerium), in future actions. Here are five things you need to know about the FTC’s case against SBH.
     
    1. “Financial Freedom”: If any MLM company or distributor still thinks it’s OK to use the term “financial freedom” in marketing their MLM’s business opportunity, they should think again. In the FTC’s papers seeking a TRO against SBH, the term “financial freedom” is referenced more than a dozen times (and not in a good way) — the phrase is repeatedly called out as a deceptive income claim. (It’s similarly highlighted six times in the FTC’s complaint.) Right from the start, the FTC uses the term to castigate SBH:
     
    Defendants … bait entrepreneurial consumers into a financial abyss by telling them that they will attain “financial freedom,” and never have to work again … Unsurprisingly, rather than provide financial freedom, the four individual Defendants siphon cash into their own pockets.
     
    The TRO memorandum goes on to highlight other unacceptable phrases and images used by defendants to promote their pyramid scheme:
     
    Defendants’ “lifestyle” claims convey the same message as their claims of financial freedom, million-dollar earnings, or unlimited income: SBH is likely to make you rich. The company’s marketing materials show images of luxury yachts, sports cars, cash, and exotic vacations.
     
    Deceptive and misleading income claims are rampant in the MLM industry and until companies and distributors stop making such claims of financial freedom they will continue to risk FTC scrutiny.
     
    2. FTC Expert Report: There’s been a lot of hysteria in the MLMverse of late that the FTC is trying to change the rules of the road when it comes to what is and is not a pyramid scheme. A recent complaint filed by Neora against the FTC alleges that the commission “is attempting to unilaterally and retroactively outlaw multi-level marketing” and “take the ‘multi’ out of multi level [sic] marketing.” However, a review of the expert report filed by the FTC in the SBH case makes clear that the agency remains on legally firm and precedent-solid ground. The FTC’s expert economist is Dr. Stacie Bosley, who was also the agency’s expert in Vemma. The FTC summarized her report as follows:
     
    Dr. Stacie Bosley, a Ph.D. in Applied Economics and an expert on multilevel marketing who previously has testified in that capacity in this District, reviewed Defendants’ compensation plan and marketing materials. She determined that the plan creates a perpetual chain of recruitment and that, as a result, it is a “money-transfer scheme that siphons money from later entrants to compensate earlier entrants, delivering easily foreseen losses (from a structural perspective) to the vast majority of participants.” According to Dr. Bosley’s modeling, 90% of people must be losing money in SBH at any given time.
     
    In her report, Dr. Bosley applies two related descriptions of a pyramid scheme: a general economic characterization, and the other, established more than 40 years ago in caselaw, known as the Koscot test, which has subsequently been upheld and applied in numerous other cases including Omnitrition, and more recently in Burnlounge. Using this structure, Dr. Bosley concludes that “the SBH marketing program and representations of that program mislead consumers into a pyramid scheme that will deliver losses to the vast majority of participants, by design. These losses are attributable to the structure and execution of the SBH program, rather than the actions or failure of individual participants.” The report, which is over 90 pages long, makes clear that whatever FTC attorneys may have said during settlement negotiations with Neora, or what Andrew Smith, director of the FTC’s Bureau of Consumer Protection, may or may not have said at a DSA event is irrelevant — the agency’s prosecution of pyramid schemes remains much the same as it ever has been.
     
    3. Consumer Complaints Matter: The FTC’s documentation against SBH includes 28 consumer complaints that the agency received through its Consumer Sentinel Network. The commission quotes extensively from some of these complaints in making its case against SBH. By way of example, the FTC’s TRO papers state:
    • A former affiliate told the FTC that “many of [his recruits] have become broke financially [because Noland] continues to push people to spend more money in his company.”
    • Defendants “forced” spending on affiliates “until [they] maybe could barely pay their own bills.”
    • “[S]o many are now homeless and broke because [of Noland’s] actions.”
     
    Victims of pyramid schemes are generally hesitant to voice their complaints, afraid of the backlash from the company and other distributors, convinced that their failure was self-inflicted, and/or concerned that relationships with family and friends (involved in the scheme) will end. But victims’ stories matter, and they need to be heard and shared — especially with the FTC.
     
    4. Tainted “Training” Events: In what appears to be a new focus area for the FTC, its complaint and TRO papers zero in on training events promoted by defendants. In a subsection of its TRO memorandum titled, “Defendants Use ‘Training’ Events to Extract More Money from Affiliates and to Condition them to Pay More into the Pyramid,” the FTC charges that:
     
    Defendants consistently pressure Affiliates to pay hundreds or thousands of dollars to attend multiple Jay Noland “training” events. Over a two-year period, consumers paid more than $1.2 million to attend these trainings or to access online training materials— approximately 25% [of] all money they paid to SBH. During these events, Defendants use intense rhetorical and emotional appeals with bright lights, loud music, dancers, and flashy visuals to extract even more money from consumers.
     
    Pushing distributors to attend costly training sessions, events and conventions is common practice in the MLM industry. In 2017, a class-action lawsuit against Herbalife alleged that the company (and a multitude of other defendants) defrauded consumers by deceptively marketing its Circle of Success events as the key to attaining life-changing income. The complaint went on to criticize the FTC for failing to include this aspect of Herbalife’s business model in its $200 million settlement with the company. Specifically, the complaint stated:
     
    But untouched by the FTC’s action . . . is the single most effective fraud in the arsenal of Herbalife and its top distributors – the Circle of Success event system. The event system lures and ensnares people such as Plaintiffs with the guarantee of significant income, a better lifestyle, and even happiness – all to be easily attained through event attendance.
     
    Well it appears that the FTC may have just gotten the memo. And there is no doubt that by including such allegations in its complaint, the FTC can argue that it is entitled to obtain more money in order to fully compensate SBH’s victims.
     
    5. Four Months, Three Pyramid Cases: TINA.org predicted that 2020 would be a bad year for pyramid schemes attempting to disguise themselves as legitimate MLMs. We based our prediction on the fact that after bringing only four pyramid scheme cases in the previous 11 years, the FTC filed two such cases in late 2019.
     
    Now in the past four months, the FTC has announced pyramid scheme actions against three MLMs: first, in October 2019 there was Advocare, which agreed to cease operating as a multilevel marketing company; next, in December 2019 Neora (aka Nerium) and the FTC filled dueling lawsuits over the issue of whether Neora is or is not a pyramid scheme; and finally, there’s the FTC action against SBH, which will most likely result in the demise of SBH and a permanent MLM ban for its founder, Jay Noland.
     
    Given the number of MLMs engaged in deceptive marketing and the many focused on recruitment over product sales, it’s likely that we haven’t seen the end of this prosecutorial trend by the FTC. My vote for upcoming FTC actions – IM Master Academy (aka iMarketsLive) and New U Life.
     
  • Like this story? Get our top stories by email.

    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

    online financial advisory
    Pathbreakers
    Pathbreakers 1 & Pathbreakers 2 contain deep insights, unknown facts and captivating events in the life of 51 top achievers, in their own words.
    online financia advisory
    The Scam
    24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
    Moneylife Online Magazine
    Fiercely independent and pro-consumer information on personal finance
    financial magazines online
    Stockletters in 3 Flavours
    Outstanding research that beats mutual funds year after year
    financial magazines in india
    MAS: Complete Online Financial Advisory
    (Includes Moneylife Online Magazine)
    FREE: Your Complete Family Record Book
    Keep all the Personal and Financial Details of You & Your Family. In One Place So That`s Its Easy for Anyone to Find Anytime
    We promise not to share your email id with anyone