Osian Art Fund: Art of a scam?

A fool and his money are soon parted, the saying goes. Obviously, pathetic returns come in when an ’art’ fund is managed by an Investment Banker type. And valuation is so iffy that the winding-down realisation is at huge odds with the so-called ‘declared’ asset value.

What is interesting is that there is no regulatory oversight for any aspect of this kind of business. Brokers and investment bankers have milked this lacuna by selling such funds to people only because they get commissions which could be in the range of 6%-10% of the amount mobilised. And, of course, these ‘selling expenses’ are charged to the fund.

The interesting thing is that the products were actually sold to smaller guys also in lots of as low as Rs1 lakh.  In their greed to grab the commission, the intermediaries left no one alone, big or small.  Intermediaries approved by Securities and exchange Board of India (SEBI) selling non-regulated products should be probed and preferably banned. As it is, today many brokers are selling so many ’structured’ products, including ‘guaranteed’ products which can cause serious damage to any investor. SEBI has to wake up and impose a blanket ban on anyone selling any financial product that is not approved. Maybe the RBI could also step in. It is these kind of art funds, plantation schemes, time-share schemes, etc that cause financial bloodshed.

The main reason is that these products can be sold by anyone to anyone. Or take another interesting example. I saw an ad of a jewellery company called ’KFJ’ which offers a scheme whereby you contribute a fixed amount each month, for 30 months. At the end of 30 months, KFJ guarantees you gold for your money ‘at the lowest price which existed during the 30 months’.  The arithmetic is not workable. Either KFJ is very certain that gold prices are going to keep crashing (in which case, the 30th month price would be the lowest and it can use the money for the period of 30 months)  or it uses the money to speculate in other assets which offer returns that  can make good the difference.  I have a feeling that this is going to turn into a mega scam. If this is not deposit-taking or a collective investment scheme, I wonder what is. The Reserve Bank of India (RBI) is, of course, the ‘Big Sleeper’; one has to ‘bring to attention’ any wrongdoing and then RBI asks for its morning cup of coffee before getting to work.

Clearly, KFJ’s scheme is a Ponzi scheme in the making. It does not need any regulatory approvals, so KFJ can merrily trap the greed for gold in its main catchment areas in south India, where the craze for gold is legendary. Housewives will be eager victims.

Our regulators will not wake up. Teak plantation schemes, time-share schemes, chit funds, fixed deposits, land scams et al will thrive and smart conmen will vanish with the money. The investors have no protection at all from financial rogues who come disguised as brokers and insurance salesmen. I also feel that the investors who lose their money deserve it, simply because they are so greedy and gullible.  

(Read Moneylife news breaks on Osian at http://www.moneylife.in/section/81/44584.html)

Comments
Sharat Jain
8 years ago
We have also not received the redemption proceeds from Osian's Art Fund. We have written on many forums, but till date no action has been taken against this scheme. It is very hard to digest that this type of schemens are first floated under the nose of our Govt., and then when the company is unable to pay back (for the reasons best known to them), they try to delay the matter for years & years on one pretext or the other. Sharat Jain. New Delhi.
Venkat Iyer
1 decade ago
I am a regular reader of articles published in your magazine.
To be frank, I have never been a 'great' sympathizer of small investors who are swayed all their lives with 'greed'.
You were right that these people 'deserve' it and much more.
When someone said- 'Talk economics and people get bored.
Talk about money and their eyes lit up'.
And looking at the number of scams in our country I have a suggestion to our politicians who have a penchant to rename our cities and states. What could be much easier than that?
It is time we changed the name of our country from India to "Scamdia".
lowkeyfan
1 decade ago
KFJ, for any other reasons going down the tube is another thing, is not running an unviable ponzi scheme which is a pyramiding scheme.

By guaranteeing gold at the lowest price that existed in the future 30 months it is SELLING to the investor to a Lookback CALL option and also OBTAINING from the investor a Forward Start Call option with the Forward start date at 30 months. Net cost of these two options is less than the interest free monies it is receiving for 30 months in equal instalments. It is possible to honestly honour this commitment, financially and mathematically. Someone ends up cheating will be a factor of other things.
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