Must know: Reporting Ponzi schemes

Rose Valley, Saradha and Pearl Group have all been in the news in recent years. Multi-level marketing has been the bane of regulators and gullible members who figure they have been cheated quiet late in the day. The get rich quick schemes are known in regulatory parlance as Ponzi schemes which are investment scams that initially pay returns to investors from their own money, or from money paid in by subsequent investors, until they either start delaying returns or treating it as fresh investments.

The chain starts when the first set of investors get the promised returns and they in turn start to spread the word to family and friends. In this way, the scheme gains credibility. Once the scheme attracts a sizeable number of participants, the fraudsters vanish with investors’ money, so the system eventually collapses with later investors receiving nothing - including their initial investment. As Ponzi schemes are unauthorised and make no profits, you are very unlikely to recover any lost money. The name has stuck after Charles Ponzi, was among the first of the big time multilevel investment scheme floaters in the 1920s.

What’s the difference?

There are many who confuse between chit funds and Ponzi schemes. Chit funds are not Ponzi schemes as these are governed by the Chit Funds Act, 1982 which is a Central Act administered by State Governments. The chit fund companies registered under the Chit Fund Act can legally carry on chit fund business. In contrast, Ponzi schemes fall under no such regulations and are a menace.

To check the proliferation of such unregulated schemes, which originate in small towns and villages, the RBI launched a website and helpline to warn people against these schemes and also raise complaint against them. Sachet – www.sachet.rbi.org.in, is a website that details all that one needs to know about companies that are allowed to accept deposits. You can also use the site to lodge complaints and share details about illegal acceptance of deposits by unscrupulous entities. The site has been live since August 2016.

To make Sachet work, State Level Coordination Committee (SLCC), the joint forum formed in all states shares information on any such scheme floated with all regulators – RBI, SEBI, IRDAI and also the enforcement directorate, to control incidents of unauthorised acceptance of deposits. The website has information on how to identify a fraud and what to do in case one experiences or faces a Ponzi scheme. One can also post complaints to various regulators and even a link for those who are confused about the appropriate regulator. A few existing grievance mechanisms such as ombudsmen are missing from the link.

Although there is a link to complaint tracking, there is no way you can see the current list of complaints to reduce overlaps and duplication of complaints. There is a link for SLCC members, but is not open to public. Sadly the effort gone into the website and publicising it are efforts that do not seem to be yielding the kind of benefits it could have provided to public at large. Unless the regulators act seriously towards ensuring investor protection, such efforts may just remain an effort on paper with little to cheer about.

olmdesk@outlookindia.com