As various ponzi schemes continue to defraud investors of hard-earned money, the government is seeking details from industry and regulators abroad about practices being followed there to check the menace.
A move is on by the government to amend the Prize Chits and Money Circulation Schemes (Banning) or (PCMCSB) Act. The comments on the amendments and the international legal and regulatory framework for regulation of Multi Level Marketing (MLM) companies and pyramid marketing companies have been obtained by the Department of Financial Services (DFS), official sources said.
The DFS has proposed for a comprehensive cabinet note and legal amendments after obtaining more industry and regulatory practices around the world independently. The process of getting details of global industry and regulatory practices is underway, they said.
The department had earlier circulated draft amendments to PCMCSB Act, 1978, to various law and enforcement agencies for their views, which have been received and are being examined by DFS, the sources said.
Regarding amendment of the PCMCSB Act, 1978, a number of meetings have taken place with capital market regulator Securities and Exchange Board of India (Sebi) also.
The government was also considering forming a central nodal agency to deal with all kinds of ponzi schemes, they said.
A typical ponzi scheme involves the operator collecting a large amount of money from investors and paying them returns from their own money or the money collected from subsequent investors, rather than from profit earned by the person or entity operating such a scheme.
Such activities came to be known as ponzi schemes after Charles Ponzi, who became notorious in the United States in the 1920s for deploying this technique while promising 50 per cent return on investments in 45 days and 100 per cent within 90 days.
A large number of such schemes have come to the fore in the country as well and many of them are currently being probed by various agencies, including Sebi and Serious Fraud Investigation Office (SFIO).
While the capital markets watchdog has been given greater powers to deal with ponzi schemes, involving Rs 100 crore or more, Sebi feels that there are still some grey areas and the regulatory loopholes need to be looked into for a greater oversight.
"Another area which still needs to be clarified is the area of MLM and PCMCSB Act... We have had (a) series of dialogue with the government (on this). The position has to be clarified to remove these loopholes," Sebi Chairman UK Sinha had told PTI recently.
The move to bring in a regulatory framework to check ponzi scheme assumes significance in the wake of multi-crore Saradha chitfund scam being probed by the Central Bureau of Investigation (CBI), Sebi and Enforcement Directorate.
The SFIO had recently submitted its probe report on the Saradha scam and found it to be a ponzi scheme.