SEBI to clamp down on illicit schemes; not wary of litigations: U K Sinha

Sending a strong signal to those dressing up their illicit money-pooling schemes as 'credit cooperative societies' or other permissible activities, market regulator Sebi has said it is very serious in bringing them to book and is not wary of 'intensive litigations'.

Determined to clamp down on ponzi and other such schemes with enhanced powers, Sebi Chairman U K Sinha said that the regulator has come across entities which try to evade its jurisdiction by claiming to be running legal businesses such as credit cooperatives, chit funds and even NBFCs.

Giving example of a large group without disclosing its name, Sinha said that "in one particular case, which is a large case, the company was earlier under RBI domain. RBI took action and they shifted everything to something they thought was under the Ministry of Corporate Affairs and we thought it was under Sebi's jurisdiction.

"When we took action, there was news that now we are getting into co-operative society funds... People will still try, what I am saying is that not everything is plugged.

"However we are determined that we will fight all these cases," added Sinha.

Sinha told PTI in an interview, "If we have an evidence that somebody has raised Rs 100 crore, we will fight those cases and let people come out with their defences. It (our action) will be based on evidence on case to case basis."

Through a new Securities Laws Amendments Act, the government has enhanced powers of Sebi to take action against illegal money-pooling activities involving Rs 100 crore or more. The Act also provides for setting up of a special court to expedite the cases filed by Sebi.

The new law has come at a time when a large number of cases have come to fore about raising of funds from gullible investors through numerous illegal money-pooling activities.

Sebi has already taken action in recent years against entities having collectively raised well above Rs 1 lakh crore through various schemes and its crackdown is expected to rise considerably after grant of new powers.

While acknowledging that certain activities are indeed exempted from Sebi's jurisdiction, Sinha said: "In co- operative societies, for example, you can take money only from the members and not the public.

"So, they will have to show that when the person became a member and all that... It is a matter of intensive litigation but we are very serious and clear that we will be moving on those lines,said Sinha.

Acknowledging that some loopholes still exist in the system, Sinha said that even after Sebi initiates action against a collective investment scheme, the operator cites exemptions that can be a valid defence to be left out of the capital market regulator's ambit.

In a boost to its fight against fraudulent activities, capital market watchdog Sebi now has powers to seek call data records, carry out search and seizure operations, arrest defaulters and recover assets, among others.

"We are presuming that whoever has raised Rs 100 crore from the public automatically comes under CIS and we can act. However, there is a crucial point that if they are covered in any of the exemptions they will not be covered," Sinha said. Elaborating on the new powers, he said the amendments have tried to define CIS with a legal presumption.

"...what we are discovering is that there are various exceptions of what is a CIS. The main problem is that of multiplicity," he said.

Chit funds, co-operative societies, nidhi funds, NBFCs (Non Banking Financial Companies), deposits raised by companies such as mutual funds, pension funds, insurance funds, are exempted from Sebi provisions.

"So there are 7-8 exemptions and the Act also defines what is a CIS," the Sebi chief said.