The Securities and Exchange Board of India (SEBI) on Monday denied any regulatory purview over ponzi schemes, squarely placing the responsibility of protecting investors on State governments.
SEBI was responding to the Supreme Court’s poser as to what the government and the market regulator were doing to check the “menace” of schemes running across the country in various forms which robbed the poor and small investors of their hard-earned money.
The issue was brought before a Bench led by Chief Justice of India T.S. Thakur in a PIL petition by NGO Humanity Salt Lake, seeking the court’s intervention to direct the government to devise a long-term plan to end unauthorised and illegal deposit schemes, collective investment schemes (CIS), prosecute fraudsters and recover the investors’ money.
“Ponzi schemes do not fall under the regulatory purview of SEBI. The same is banned under the Prize Chit and Money Circulation (Banning) Act, 1978 and the State government concerned is the enforcement agency. Though it is a Central Act, the respective State governments are the enforcement agency of this law,” SEBI submitted in an affidavit perused by the Bench on Monday.
Majority of plaintsThe regulator, however, shared its experience that an overwhelming majority of complaints received from the public about unauthorised money mobilisation related to ponzi schemes. “Majority of money mobilised are in the nature of activities like prize chits, money circulation schemes, multi-level marketing/pyramid schemes and ponzi schemes,” the affidavit submitted.
But SEBI expressed its helplessness in regulating “banned activities” unless made aware of their existence. If informed, the regulator would stop these activities. Besides, it said, the CIS was not a banned activity. A CIS was authorised if it was registered with SEBI or got prior permission from the regulator.
