Having been jolted by the Saradha Group related controversy in West Bengal which brought to light the ill effects of ponzi schemes, the Government on Wednesday approved a proposal to amend the Sebi Act, a move which would give the market regulator greater powers to come down heavily on such multi-level marketing (MlM) schemes.
The Union Cabinet took the decision in its meeting which was headed by Prime Minister Manmohan Singh, and it is expected to give Sebi powers to conduct search and seizure operations and access call data records. Amendments to the Sebi Act and other relevant regulations were finalised after detailed consultations with the Securities and Exchange Board of India (Sebi).
Once the amendments come into effect, the regulator would have direct powers to carry out search and seizure operations and for attachment of assets, as part of efforts to crackdown on ponzi schemes. Besides, Sebi would have powers to seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being probed by it.
The capital market watchdog has been seeking an overhaul of regulations as well as mandate for a long time, given the changing nature of the securities market in general, and newer tools being used by manipulators to take gullible investors for a ride, in particular. Apart from this, the Sebi Chairman would have the powers to authorise conducting of search and seizure operations.
Currently Sebi can conduct search and seizure only after approval from the Chief Metropolitan Magistrate, but this provision is often seen as an impediment which hampers the confidential nature of the probe. A Cabinet note in this regard was floated by theDepartment of Economic Affairs to other departments in the Finance Ministry, as also to the Corporate Affairs, Home, law and Telecom ministries, along with to the Reserve Bank of India, Planning Commission and Prime Minister’s Office for their comments and feedback.
The Government decided to accept most of the proposals made by Sebi in this regard. With regard to regulation of Collective Investment Schemes (CIS), the proposal called for Sebi being empowered to deal with all kinds of investment schemes involving pooling of funds totalling Rs 100 crore or more. Also, any investment scheme floated by a ‘person’ and not only a ‘company’, has been proposed to be brought under Sebi’s jurisdiction for CIS activities.
The amendments seek to bring all kinds of ponzi schemes, which are thriving in various semi urban and rural areas at the expense of gullible investors, are brought under Sebi’s oversight, which itself would be made much more effective to safeguard investors from being defrauded.
The proposals also called for special courts to be set up to deal with offences under securities laws and to recognise the counsels representing Sebi to be deemed as public prosecutors. With regard to powers to attach properties, the current provisions do not provide for effective protection of investors in cases where there is fraudulent diversion of monies raised from investors such as ‘vanishing companies’ and ‘Collective Investment Schemes’.