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'''Saradha Group financial scandal''' is an alleged financial scam run by Saradha Group, a consortium of Indian companies running a wide variety of ] in the guise of collective investment scheme (popularly but incorrectly referred in rural India as ]) in ].<ref>{{cite web|author=PTI |url=http://www.thehindu.com/business/Industry/more-saradha-entities-under-sebi-scanner/article4650522.ece |title=More Saradha entities under SEBI scanner |publisher=The Hindu |date= |accessdate=2013-04-25}}</ref> The group collapsed in April 2013 causing an estimated loss of between INR 20,000 - 30,000 crores (4 - 6 billion USD).<ref>{{cite web|author=Soudhriti Bhabani |url=http://www.dailymail.co.uk/indiahome/indianews/article-2313658/Anger-mounts-Saradha-fund-crisis-thousands-depositors-face-ruin.html?ito=feeds-newsxml |title=Anger mounts over Saradha fund crisis as thousands of depositors face ruin &#124; Mail Online |publisher=Dailymail.co.uk |date=2013-01-23 |accessdate=2013-04-25}}</ref><ref>{{cite web|url=http://www.thehindu.com/opinion/editorial/cheat-funds-again/article4654467.ece |title=Cheat funds, again |publisher=The Hindu |date= |accessdate=2013-04-27}}</ref> In the aftermath of this financial scandal the ] set up an inquiry commission to investigate the collapse<ref>{{cite web|url=http://www.telegraphindia.com/1130422/jsp/frontpage/story_16814688.jsp#.UXfgV8V4800 |title=Mamata announces SIT, inquiry into Saradha |publisher=Telegraphindia.com |date=1999-03-01 |accessdate=2013-04-25}}</ref> and have also announced setting up a fund of INR 500 crores to ensure that smallest investors are not bankrupted.<ref></ref> '''Saradha Group financial scandal''' is a financial scam caused by collapse of a ] run by Saradha Group, a consortium of Indian companies running a wide variety of collective investment schemes (popularly but incorrectly referred in rural India as ]) in ].<ref>{{cite web|author=PTI |url=http://www.thehindu.com/business/Industry/more-saradha-entities-under-sebi-scanner/article4650522.ece |title=More Saradha entities under SEBI scanner |publisher=The Hindu |date= |accessdate=2013-04-25}}</ref> The group collapsed in April 2013 causing an estimated loss of between INR 20,000 - 30,000 crores (4 - 6 billion USD).<ref>{{cite web|author=Soudhriti Bhabani |url=http://www.dailymail.co.uk/indiahome/indianews/article-2313658/Anger-mounts-Saradha-fund-crisis-thousands-depositors-face-ruin.html?ito=feeds-newsxml |title=Anger mounts over Saradha fund crisis as thousands of depositors face ruin &#124; Mail Online |publisher=Dailymail.co.uk |date=2013-01-23 |accessdate=2013-04-25}}</ref><ref>{{cite web|url=http://www.thehindu.com/opinion/editorial/cheat-funds-again/article4654467.ece |title=Cheat funds, again |publisher=The Hindu |date= |accessdate=2013-04-27}}</ref> In the aftermath of this financial scandal the ] set up an inquiry commission to investigate the collapse<ref>{{cite web|url=http://www.telegraphindia.com/1130422/jsp/frontpage/story_16814688.jsp#.UXfgV8V4800 |title=Mamata announces SIT, inquiry into Saradha |publisher=Telegraphindia.com |date=1999-03-01 |accessdate=2013-04-25}}</ref> and have also announced setting up a fund of INR 500 crores to ensure that low income investors are not bankrupted.<ref></ref> The ] also mobilised its resources and launched a multi agency probe to investigate Saradha scam as well as other similar ponzi schemes.<ref>{{cite web|url=http://newindianexpress.com/nation/60-firms-like-Saradha-Group-operating-in-Bengal/2013/04/26/article1562747.ece|title=60 firms like Saradha Group operating in Bengal|last=Dasgupta|first=Mithun|date=26 April 2013|publisher=The New Indian Express|accessdate=29 April 2013}}</ref>


==Modus operandi== ==Background==
{{See also:Banking in India}}
Companies belonging to Saradha Group were incorporated from 2006, initially the companies started to collect money from public by issuing secured debentures and redeemable preferential debentures. However under Indian Securities regulations and Indian Companies Act enforced by market regulator ], a company cannot raise capital from more than 49 persons without taking permission from SEBI. On being challenged by SEBI, in around 2009, the Group started opening numerous companies (over 300 under some estimate) to create cross-holdings etc. and have tiered corporate structure to make it difficult to pin blame on any one company. However by 2010 under relentless pressure from SEBI, the companies changed its modus operandi and started to conduct business under a collective investment scheme (CIS) which it touted as a form of chit fund, as chit funds were regulated by state government, SEBI warned the state government of West Bengal, later SEBI realised that these were not chit funds but CIS and asked them to immediately stop operating these forms of investment schemes without taking permission from SEBI. The companies by 2011 yet again changed its operating strategy and started chain marketing and forward hotel booking etc. but sold it to public as investment opportunity. Finally in April 2013 just after the collapse of the fund SEBI opined that chain marketing and forward contracts are forms of CIS and asked Saradha Group to immediately desist from raising any further capital and return all deposits by three months.<ref>http://www.sebi.gov.in/cms/sebi_data/attachdocs/1366731012533.pdf</ref><ref>http://www.firstpost.com/ebook_download.php?id=105&utm_source=ebooks&utm_medium=hp</ref>
India comprises of mainly low income rural population with low access to formal banking facilities.<ref>{{cite web|url=http://articles.economictimes.indiatimes.com/2013-04-23/news/38763419_1_financial-inclusion-mobile-banking-banking-system|title=Ponzi schemes show failure of formal banking|date=23 April 2013|publisher=The Economic Times|accessdate=29 April 2013}}</ref> This financial exclusion created a web of parallel informal banking with web of moneylenders etc. who charged exorbitant rates of interest, this was greatly curbed by various Moneylenders Act promulgated by state governments in the 1950s. However broader failures in India’s banking sector to replace the moneylender gave rise to fly by night operators who mostly turned out to run ponzi schemes in various disguises.<ref>{{cite web|url=http://www.aljazeera.com/indepth/features/2013/04/2013427155533920295.html|title=Indian Ponzi scheme pushes many to penury|last=Chaki|first=Deborshi|date=28 April 2013|publisher=AlJazeera|accessdate=29 April 2013}}</ref>
] with a relatively prosperous rural economy had largely relied on small savings schemes run by ], however the low rates of interest in these savings schemes had in 1980s and 90s given rise to ponzi scandals in pseudo profit making and speculative ventures like Sanchayita Investments, Overland Investment Company, Verona Credit and Commercial Investment Company, Shanchayani Investment Company etc. which wiped off close to 1000 crores INR in investor wealth.<ref>{{cite web|url=http://www.indianexpress.com/news/mamata-banerjee-vows-to-repay-depositors-of-saradha-groups-sudipta-sen/1108090/|title=Mamata Banerjee vows to repay depositors of Saradha group's Sudipta Sen|date=26 April 2013|publisher=Indian Express|accessdate=29 April 2013}}</ref><ref>{{cite web|url=http://articles.economictimes.indiatimes.com/2013-04-24/news/38790645_1_collective-investment-schemes-ponzi-tower-infotech/2|title=The fall of Saradha group revives old ghosts of ponzi schemes going bust|last=Ray|first=Atmadip|date=24 April 2013|publisher=The Economic Times|accessdate=29 April 2013}}</ref> However in spite of a history of ponzi scams in Bengal, in the last decade a steadily decreasing interest rates in the small saving schemes, lack of financial literacy and investor awareness, political patronage, absence of adequate legal deterrence and regulatory arbitrage led to a mushrooming of companies which raised public money through channels like collective investment schemes, non-convertible debentures and preference shares, or hoax instruments such as teak bonds or potato bonds. Data collated by the government shows that more than 8 out of 10 multi-level marketing and finance schemes against which authorities in India have received complaints are run out of West Bengal, giving the state the sordid title of 'Ponzi capital of India'.<ref>{{cite web|url=http://www.hindustantimes.com/business-news/WorldEconomy/Is-Bengal-the-Ponzi-capital-of-India/Article1-1051771.aspx|title=Is Bengal the Ponzi capital of India?|last=Sharma|first=Nagender|coauthors=Gaurav Chaudhury|date=28 April 2013|publisher=Hindustan Times|accessdate=29 April 2013}}</ref> It is estimated that these ponzi funds have all-together amassed around Rs.10 lakh crore (200 billion USD) from unsuspecting depositors in Eastern India.<ref>{{cite news|url=http://www.business-standard.com/article/current-affairs/60-firms-like-saradha-operating-in-bengal-113042500411_1.html|title=60 firms like Saradha operating in Bengal|date=25 April 2013|work=Business Standard|publisher=IANS|accessdate=29 April 2013|location=Kolkata}}</ref>


==Modus operandi of Saradha==
⚫ ==Key People==
Companies belonging to Saradha Group were incorporated from 2006, the group name is a ] of the name of one of the most revered spiritual icon of the region ], the wife and spiritual counterpart of ], a nineteenth century ] of ].<ref>{{cite news|url=http://www.thehindubusinessline.com/opinion/in-the-name-of-maa-sarada/article4654188.ece|title=In the name of Maa Sarada|last=Ray Choudhury|first=Ranabir|date=25 April 2013|work=Hindu Businee Line|accessdate=29 April 2013}}</ref> The 'association' with the name of a revered icon gave the group a veneer of respectability.<ref>{{cite news|url=http://www.business-standard.com/article/current-affairs/newsmaker-sudipta-sen-113042500932_1.html|title=Newsmaker: Sudipta Sen|last=Dutta|first=Ishita|date=29 April 2013|work=Business Standard|accessdate=29 April 2013}}</ref> Like an archetypal ponzi scam, Saradha group promised astronomical returns in fanciful but credible investments; it recruited rural youth who had influence and good reputation in the community to act as agents who would collect funds from various localities. It thus created a complex ] and enticed them by giving away between 25%-40% of the deposit collected to the agents as commission fee and other lucrative gifts.<ref>{{cite news|url=http://www.indianexpress.com/news/in-story-of-saradhas-crores-bengals-forgotten-hundreds/1108543/|title=In story of Saradha's crores, Bengal's forgotten hundreds|last=Das|first=Madhuparna|date=28 April 2013|work=Indian Express|accessdate=29 April 2013}}</ref>
To keep ahead of regulators, the group frequently changed its strategy and used a nexus of companies to ].<ref>{{cite news|url=http://timesofindia.indiatimes.com/india/PM-says-unauthorized-deposit-collection-has-to-be-curbed/articleshow/19762166.cms|title=PM says unauthorized deposit collection has to be curbed|date=28 April 2013|work=Times of India|accessdate=29 April 2013|location=New Delhi}}</ref> Initially the numerous companies were used to collect money from public by issuing ] and ].<ref>{{cite news|url=http://articles.economictimes.indiatimes.com/2013-04-26/news/38843867_1_small-savings-sector-savings-financial-savings|title=Saradha chit fund scam: State government failed, but so has centre|last=Pande|first=Vinay|date=26 April 2013|publisher=The Economic Times|accessdate=29 April 2013}}</ref> However under Indian Securities regulations and section 67 of Indian Companies Act, enforced by market regulator ], a company cannot raise capital from more than 50 persons without issuing proper ] accompanied with balance sheet, audited accounts and taking proper permission from SEBI.<ref>{{cite news|url=http://www.business-standard.com/article/companies/in-bengal-s-grey-money-market-saradha-is-just-one-113042600611_1.html|title=In Bengal's grey 'money market', Saradha is just one |last=Acharya|first=Namrata|date=26 April 2013|work=]|accessdate=29 April 2013}}</ref> On being challenged by SEBI, in around 2009, the group started opening numerous companies (over 300 by some estimate)<ref>{{cite news|url=http://www.telegraphindia.com/1130423/jsp/frontpage/story_16817006.jsp#.UX6Qw8V4800|title=Saradha with 120 arms and blessings|last=Saha|first=Sambit|coauthors=Pranseh Sarkar|date=23 April 2013|work=The Telegraph|accessdate=29 April 2013|location=Calcutta}}</ref> to create more cross-holdings etc. and have tiered corporate structure to make it difficult to pin blame on any one company.
However by 2010 under relentless investigative pressure from SEBI,<ref>{{cite news|url=http://timesofindia.indiatimes.com/city/kolkata/Sebis-Saradha-order-came-3-years-after-probe-started/articleshow/19774915.cms|title=Sebi's Saradha order came 3 years after probe started|last=Konar|first=Debasis|date=29 April 2013|work=Times of India|accessdate=29 April 2013|location=Kolkata}}</ref> the group changed its modus operandi and started to raise capital in various states like ], ], ] and ] under variations of collective investment schemes (CIS) like tourism packages, forward travel and hotel booking credit transfer, real estate, infrastructure finance, motor cycle manufacturing<ref>{{cite web|url=http://www.ndtv.com/article/india/motorcycle-factory-cited-in-chit-fund-letter-bomb-that-ran-on-deceit-358495|title=Motorcycle factory, cited in chit-fund letter bomb, that ran on deceit|last=Pandey|first=Alok|date=24 April 2013|publisher=NDTV|accessdate=29 April 2013|location=Kolkata}}</ref> etc.<ref>{{cite news|url=http://www.business-standard.com/article/current-affairs/after-saradha-next-target-should-be-rose-valley-sushil-modi-113042700329_1.html|title=After Saradha, next target should be Rose Valley: Sushil Modi|last=Basak|first=Probal|date=27 April 2013|work=Business Standard|accessdate=29 April 2013|location=Kolkata}}</ref> The investors were rarely informed about the true nature of the investments and were instead told that they would get high returns after a fixed period,<ref>{{cite news|title=Saradha scam: Several inquiries are going on, WB governor says|first=PTI|date=26 April 2013|work=Times of India|accessdate=29 April 2013|location=Kolkata}}</ref> at other times the investment was mis-sold as a form of 'chit fund',<ref>{{cite web|url=http://in.finance.yahoo.com/news/disassociate-saradha-chit-fund-sector-113015760.html|title=Disassociate Saradha from chit fund sector, says chit fund association|first=IANS|date=29 April 2013|publisher=Yahoo Finance India|accessdate=29 April 2013|location=New Delhi}}</ref> as chit funds were regulated by state government under the Chit Fund Act, 1982, SEBI warned the state government of West Bengal to take appropriate steps.<ref name="SEBIorder"><ref>{{cite web|url=http://www.sebi.gov.in/cms/sebi_data/attachdocs/1366731012533.pdf|title=SEBI Order (WTM/RKA/ERO-CIS/19/2013)|date=23 April 2013|publisher=SEBI|accessdate=29 April 2013|location=Mumbai}}</ref>
Later in 2012, SEBI realised that these were not chit funds but are actually CIS and asked Saradha Group to immediately stop operating these forms of investment schemes without taking prior permission from SEBI.<ref name="SEBIorder"/> However Saradha group continued flouting SEBI instruction and carried on its financial schemes till its eventual collapse in April 2013.

===Building brand and non-financial businesses===
Like other historic ponzi funds (for example ]), Saradha group invested heavily and meticulously in building its brand. With enormous funds at its disposal Saradha invested in high visibility sectors like ],<ref>{{cite news|url=http://www.hindustantimes.com/India-news/Kolkata/Bengal-s-film-industry-dances-to-ponzi-fund-tune/Article1-1051137.aspx|title=Bengal's film industry dances to ponzi fund tune|last=Acharya|first=Anindita|date=27 April 2013|work=Hindustan Times|accessdate=29 April 2013|location=Kolkata}}</ref> where it roped in famous actress and ] ] ] as its brand ambassador.<ref name="FPTMC">{{cite news|url=http://www.firstpost.com/politics/how-trinamool-burnt-its-fingers-in-the-saradha-chit-fund-scam-717842.html|title=How Trinamool burnt its fingers in the Saradha chit fund scam|last=Roy|first=Sandip|date=22 April 2013|work=Firstpost|accessdate=29 April 2013|location=Kolkata}}</ref>
Saradha group also recruited Kunal Ghosh another ] ] to act as the CEO of the media group.<ref name="FPTMC"/> Under Kunal Ghosh the group went on an unprecedented spree of buying and establishing local television channels and newspapers. By 2013 it employed over 1500 journalists and owned seven news papers in four languages: ''Bengal Post'', ''Seven Sisters Post'' (English dailies), ''Kolom'' (a ] daily), ''Sakalbela'', ''Prabhat Varta'', ''Parama'' (Bengali dailies) and ''Azad Hind'' (a ] daily); two Bengali news channels ''Tara News'' and ''Channel 10'' and two Bengali general entertainment channels: ''Tara Muzic'' and ''Tara Bangla''.<ref name="OUTLOOK1">{{cite news|url=http://www.outlookindia.com/article.aspx?285082|title=Then Came The Showstopper|last=Mitra|first=Dola|date=6 May 2013|publisher=Outlook India|accessdate=29 April 2013}}</ref>
In 2011, the group bought Global Automobiles, a heavily indebted motor cycle company. The company stopped production in 2011, yet kept 150 workers on payroll who would 'pretended to work whenever truckloads and busloads of prospective depositors of Saradha Realty visited the plant for a first-hand check before investing.'<ref>{{cite news|url=http://www.hindustantimes.com/India-news/Kolkata/Saradha-owner-faked-motorbike-factory-to-dupe-investors/Article1-1048907.aspx|title=Saradha chief used fake mobike plant to dupe investors|last=Bhattacharya|first=Snigdhendu|date=23 April 2013|work=Hindustan Times|accessdate=29 April 2013|location=Kolkata}}</ref>
As part of its ] program, Saradha group donated motorcycles to the ] and pulled off a public relations coup when on 19 July 2011 it persuaded ], the ] to launch its ambulances and motorcycles for the Jangalmahal area of ].<ref>{{cite news|url=http://www.deccanchronicle.com/130428/news-current-affairs/article/chit-fund-scam-mamata-banerjee-donated-saradha-sops-faces|title=Chit fund scam: Mamata Banerjee donated Saradha sops, faces backlash|last=Basak|first=Sanjay|date=28 April 2013|work=Deccan Chronicle|accessdate=29 April 2013}}</ref>


===Political patronage===

⚫ * ], Health and education minister of Assam.<ref>{{cite web|url=http://www.timesnow.tv/Sudipta-Sen-sent-to-14-day-police-remand/articleshow/4426115.cms |title=Saradha chitfund: Sudipta Sen sent to 14-day police remand- TIMESNOW.tv - Latest Breaking News, Big News Stories, News Videos |publisher=Timesnow.Tv |date= |accessdate=2013-04-26}}</ref><ref>{{cite web|url=http://www.indiablooms.com/NewsDetailsPage/2013/newsDetails250413i.php |title=Assam for CBI probe into Saradha scam |publisher=Indiablooms.com |date=2004-01-01 |accessdate=2013-04-26}}</ref>

⚫ Union minister of Finance's wife Nalini Chidambaram is also was also indicated in the scam by TMC and Sudipta Sen.<ref>{{cite web|author=PTI Apr 25, 2013, 09.31PM IST |url=http://timesofindia.indiatimes.com/india/Chit-fund-TMC-questions-role-of-Chidambarams-wife-in-Saradha-group/articleshow/19729331.cms |title=Chit fund: TMC questions role of Chidambaram's wife in Saradha group - Times Of India |publisher=Timesofindia.indiatimes.com |date= |accessdate=2013-04-26}}</ref>



==Collapse and unravelling of the scam==

Finally in April 2013 just after the collapse of the fund SEBI opined that chain marketing and forward contracts are forms of CIS and asked Saradha Group to immediately desist from raising any further capital and return all deposits by three months.<ref>http://www.sebi.gov.in/cms/sebi_data/attachdocs/1366731012533.pdf</ref><ref>http://www.firstpost.com/ebook_download.php?id=105&utm_source=ebooks&utm_medium=hp</ref>


⚫ ===Key People===
*Sudipto Sen *Sudipto Sen
*Debjani Mukhopadhdhay *Debjani Mukhopadhdhay
Line 14: Line 43:
*] (Owner of ] Paper), son of ] *] (Owner of ] Paper), son of ]
*] (President Of Worker's Union) *] (President Of Worker's Union)
*] (Brand-Ambassador)


==Alleged INC Leaders==
⚫ * ], Health and education minister of Assam.<ref>{{cite web|url=http://www.timesnow.tv/Sudipta-Sen-sent-to-14-day-police-remand/articleshow/4426115.cms |title=Saradha chitfund: Sudipta Sen sent to 14-day police remand- TIMESNOW.tv - Latest Breaking News, Big News Stories, News Videos |publisher=Timesnow.Tv |date= |accessdate=2013-04-26}}</ref><ref>{{cite web|url=http://www.indiablooms.com/NewsDetailsPage/2013/newsDetails250413i.php |title=Assam for CBI probe into Saradha scam |publisher=Indiablooms.com |date=2004-01-01 |accessdate=2013-04-26}}</ref>


==Operation==
===Media Operations===
Saradha group was the owner of:
*Bengal Post (English Daily)
*] (English Daily from ])
*Kolom (A ] Daily)
*Channel 10 (Television Media)
*Paroma (Bengali Daily)


==Aftermath and reactions==
===Tollywood Operations===
===State government reaction===
Saradha Group was a financier in Tollywood. Film actress ] was their Brand-Ambassador. ] was also associated with them.


===Nalini Chidambaram's involvement===
⚫ Union minister of Finance's wife Nalini Chidambaram is also was also indicated in the scam by TMC and Sudipta Sen.<ref>{{cite web|author=PTI Apr 25, 2013, 09.31PM IST |url=http://timesofindia.indiatimes.com/india/Chit-fund-TMC-questions-role-of-Chidambarams-wife-in-Saradha-group/articleshow/19729331.cms |title=Chit fund: TMC questions role of Chidambaram's wife in Saradha group - Times Of India |publisher=Timesofindia.indiatimes.com |date= |accessdate=2013-04-26}}</ref>


===Central government reaction===
⚫ ==Victims==


===Political reaction===

===Macroeconomic and microeconomic effects===

⚫ ===Victims===
Since the breaking out of the news of the financial scam, many agents and depositors have committed suicide. Since the breaking out of the news of the financial scam, many agents and depositors have committed suicide.
*Tapan Biswas (36, depositor, Balrampur, Purulia), by hanging himself from the ceiling of his house, on April,26 *Tapan Biswas (36, depositor, Balrampur, Purulia), by hanging himself from the ceiling of his house, on April,26
Line 41: Line 64:
*Yadav Majhi (33, agent, Mayabazar, ], Burdwan), by hanging himself from the ceiling of his house, on April 19 *Yadav Majhi (33, agent, Mayabazar, ], Burdwan), by hanging himself from the ceiling of his house, on April 19


==Criminal prosecution and ongoing investigations==
==See Also==
*]


==References== ==References==
{{reflist|30em}}
<references />

{{finance-stub}}
{{India-stub}}


] ]

Revision as of 18:12, 29 April 2013

Saradha Group financial scandal is a financial scam caused by collapse of a ponzi scheme run by Saradha Group, a consortium of Indian companies running a wide variety of collective investment schemes (popularly but incorrectly referred in rural India as chit fund) in Eastern India. The group collapsed in April 2013 causing an estimated loss of between INR 20,000 - 30,000 crores (4 - 6 billion USD). In the aftermath of this financial scandal the State government of West Bengal set up an inquiry commission to investigate the collapse and have also announced setting up a fund of INR 500 crores to ensure that low income investors are not bankrupted. The Union Government also mobilised its resources and launched a multi agency probe to investigate Saradha scam as well as other similar ponzi schemes.

Background

Template:See also:Banking in India India comprises of mainly low income rural population with low access to formal banking facilities. This financial exclusion created a web of parallel informal banking with web of moneylenders etc. who charged exorbitant rates of interest, this was greatly curbed by various Moneylenders Act promulgated by state governments in the 1950s. However broader failures in India’s banking sector to replace the moneylender gave rise to fly by night operators who mostly turned out to run ponzi schemes in various disguises. West Bengal with a relatively prosperous rural economy had largely relied on small savings schemes run by Indian Postal Service, however the low rates of interest in these savings schemes had in 1980s and 90s given rise to ponzi scandals in pseudo profit making and speculative ventures like Sanchayita Investments, Overland Investment Company, Verona Credit and Commercial Investment Company, Shanchayani Investment Company etc. which wiped off close to 1000 crores INR in investor wealth. However in spite of a history of ponzi scams in Bengal, in the last decade a steadily decreasing interest rates in the small saving schemes, lack of financial literacy and investor awareness, political patronage, absence of adequate legal deterrence and regulatory arbitrage led to a mushrooming of companies which raised public money through channels like collective investment schemes, non-convertible debentures and preference shares, or hoax instruments such as teak bonds or potato bonds. Data collated by the government shows that more than 8 out of 10 multi-level marketing and finance schemes against which authorities in India have received complaints are run out of West Bengal, giving the state the sordid title of 'Ponzi capital of India'. It is estimated that these ponzi funds have all-together amassed around Rs.10 lakh crore (200 billion USD) from unsuspecting depositors in Eastern India.

Modus operandi of Saradha

Companies belonging to Saradha Group were incorporated from 2006, the group name is a cacography of the name of one of the most revered spiritual icon of the region Sarada Devi, the wife and spiritual counterpart of Ramakrishna Paramahamsa, a nineteenth century mystic of Bengal. The 'association' with the name of a revered icon gave the group a veneer of respectability. Like an archetypal ponzi scam, Saradha group promised astronomical returns in fanciful but credible investments; it recruited rural youth who had influence and good reputation in the community to act as agents who would collect funds from various localities. It thus created a complex agent pyramid and enticed them by giving away between 25%-40% of the deposit collected to the agents as commission fee and other lucrative gifts. To keep ahead of regulators, the group frequently changed its strategy and used a nexus of companies to launder money. Initially the numerous companies were used to collect money from public by issuing secured debentures and redeemable preferential bonds. However under Indian Securities regulations and section 67 of Indian Companies Act, enforced by market regulator Securities and Exchange Board of India (SEBI), a company cannot raise capital from more than 50 persons without issuing proper prospectus accompanied with balance sheet, audited accounts and taking proper permission from SEBI. On being challenged by SEBI, in around 2009, the group started opening numerous companies (over 300 by some estimate) to create more cross-holdings etc. and have tiered corporate structure to make it difficult to pin blame on any one company. However by 2010 under relentless investigative pressure from SEBI, the group changed its modus operandi and started to raise capital in various states like West Bengal, Jharkhand, Assam and Chattisgarh under variations of collective investment schemes (CIS) like tourism packages, forward travel and hotel booking credit transfer, real estate, infrastructure finance, motor cycle manufacturing etc. The investors were rarely informed about the true nature of the investments and were instead told that they would get high returns after a fixed period, at other times the investment was mis-sold as a form of 'chit fund', as chit funds were regulated by state government under the Chit Fund Act, 1982, SEBI warned the state government of West Bengal to take appropriate steps.Cite error: A <ref> tag is missing the closing </ref> (see the help page). Later in 2012, SEBI realised that these were not chit funds but are actually CIS and asked Saradha Group to immediately stop operating these forms of investment schemes without taking prior permission from SEBI. However Saradha group continued flouting SEBI instruction and carried on its financial schemes till its eventual collapse in April 2013.

Building brand and non-financial businesses

Like other historic ponzi funds (for example Russian MMM), Saradha group invested heavily and meticulously in building its brand. With enormous funds at its disposal Saradha invested in high visibility sectors like Bengali film industry, where it roped in famous actress and Trinamool Congress Member of parliament Satabdi Roy as its brand ambassador. Saradha group also recruited Kunal Ghosh another Trinamool Congress Member of parliament to act as the CEO of the media group. Under Kunal Ghosh the group went on an unprecedented spree of buying and establishing local television channels and newspapers. By 2013 it employed over 1500 journalists and owned seven news papers in four languages: Bengal Post, Seven Sisters Post (English dailies), Kolom (a Urdu daily), Sakalbela, Prabhat Varta, Parama (Bengali dailies) and Azad Hind (a Hindi daily); two Bengali news channels Tara News and Channel 10 and two Bengali general entertainment channels: Tara Muzic and Tara Bangla. In 2011, the group bought Global Automobiles, a heavily indebted motor cycle company. The company stopped production in 2011, yet kept 150 workers on payroll who would 'pretended to work whenever truckloads and busloads of prospective depositors of Saradha Realty visited the plant for a first-hand check before investing.' As part of its corporate social responsibility program, Saradha group donated motorcycles to the Kolkata Police and pulled off a public relations coup when on 19 July 2011 it persuaded Mamata Banerjee, the Chief Minister of West Bengal to launch its ambulances and motorcycles for the Jangalmahal area of West Midnapore.


Political patronage

Union minister of Finance's wife Nalini Chidambaram is also was also indicated in the scam by TMC and Sudipta Sen.


Collapse and unravelling of the scam

Finally in April 2013 just after the collapse of the fund SEBI opined that chain marketing and forward contracts are forms of CIS and asked Saradha Group to immediately desist from raising any further capital and return all deposits by three months.


Key People

  • Sudipto Sen
  • Debjani Mukhopadhdhay
  • Somnath Dutta

Alleged TMC Leaders

In a mail to Central Bureau of Investigation Saradha Group CMD Sudipta Sen has made allegation of extortion against various persons.


Aftermath and reactions

State government reaction

Central government reaction

Political reaction

Macroeconomic and microeconomic effects

Victims

Since the breaking out of the news of the financial scam, many agents and depositors have committed suicide.

  • Tapan Biswas (36, depositor, Balrampur, Purulia), by hanging himself from the ceiling of his house, on April,26
  • Dilip Mandal (55, agent, Delsinha village near Phalta, South 24 Parganas), by consuming pesticides, on April 25
  • Urmila Pramanik (50, depositor, Baruipur, South 24 Parganas), by setting herself on fire, on April 20
  • Yadav Majhi (33, agent, Mayabazar, Durgapur, Burdwan), by hanging himself from the ceiling of his house, on April 19

Criminal prosecution and ongoing investigations

References

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  20. Konar, Debasis (29 April 2013). "Sebi's Saradha order came 3 years after probe started". Times of India. Kolkata. Retrieved 29 April 2013.
  21. Pandey, Alok (24 April 2013). "Motorcycle factory, cited in chit-fund letter bomb, that ran on deceit". Kolkata: NDTV. Retrieved 29 April 2013.
  22. Basak, Probal (27 April 2013). "After Saradha, next target should be Rose Valley: Sushil Modi". Business Standard. Kolkata. Retrieved 29 April 2013.
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  26. Acharya, Anindita (27 April 2013). "Bengal's film industry dances to ponzi fund tune". Hindustan Times. Kolkata. Retrieved 29 April 2013.
  27. ^ Roy, Sandip (22 April 2013). "How Trinamool burnt its fingers in the Saradha chit fund scam". Firstpost. Kolkata. Retrieved 29 April 2013.
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