NEW DELHI: The Serious Fraud Investigation Office (SFIO), which looks into financial frauds, has blamed lack of coordination between government agencies for the proliferation of illegal collective investment schemes across the country where investors have lost money.

The SFIO, after investigating 54 companies following the Saradha group chit fund scam which broke out in West Bengal in April, has submitted its interim report to the Ministry of Corporate Affairs (MCA). It has been given time till December to complete the probe.

“There are a large number of legislations that are operating in India with overlapping jurisdictions and promoters of suspect companies are taking advantage of such jurisdiction,” the report submitted early this month said.

Highlighting the manner in which these companies have been operating, the report said, “Early warning signs by way of public complaints are being received by various agencies, but nonsystematic handling of these complaints have helped proliferation.”

SFIO has also urged MCA to take preemptive action to protect the lifetime savings of small investors. “An alarming number of depositors from the lower economic strata have lost their lifetime savings,” the report added.

But the report does not qualify the quantum of money lost by investors or the possible amount of investment in such schemes.

According to the report, an initial study of the financial accounts and the auditor’s reports of all the companies under its scanner show similar web of transactions and statutory non-compliance of various Acts, accounting standards and falsification and malfeasance by the promoters of these companies.

The report has alerted the government that a lot of such deposit-taking companies are fast adopting a new method of money collection through ‘mutual benefit companies’.

“According to market intelligence, many such companies are mushrooming in some of the states,” SFIO said. It has also highlighted that in order to overcome regulatory scrutiny, promoters of such companies are using another Act — the Multi-State Cooperative Societies Act 2002 — as an instrument of deception.

After the Saradha group disaster where thousands lost their savings, MCA had asked a special task force (STF) in the SFIO to probe all the group companies of three other suspicious entities — Sunshine India Group, Icore Group and Rose Valley group along with the Saradha group companies. The STF was also tasked with the job of studying the landscape and modus operandi of similar entities across the country.

While giving an update on its probe so far, SFIO said it is currently studying the manner in which these companies collected funds from small investors, luring them with higher than average rate of returns, only to siphon off the funds to other accounts.

According to the interim report, Rose Valley maintained close to 1,500 accounts in different branches of various banks out of which the STF has accessed financial statements of close to 1,200 accounts and Saradha group maintained about 250 accounts.

“Initial scrutiny has revealed that many of these were used as collection accounts and funds were transferred to principal account on a regular basis,” the STF has found in the case of the Saradha group companies. In the past 3-4 years, Saradha group had acquired four companies —Global Automobiles Ltd, Bengal Media Pvt Ltd, Bhansak Foods Pvt and Landmark Cement Pvt Ltd — most of which are loss-making .

Leave a Reply