The Serious Fraud Investigation Office (SFIO), which looks into the financial fraud in the country and functions under the Ministry of Corporate Affairs (MCA), was given more teeth including the power to make arrests in August this year but the agency has failed to make a single arrest in four months.
“This inaction comes at a time when the SFIO has 300 cases related to serious financial fraud in its hand and it could have easily made several arrests. But the SFIO failed to make any effort in this direction. More than half of these cases, which were taken up by the SFIO for the investigation in its current fiscal, are related to the ponzi schemes,” a source in the MCA told The Sunday Guardian.
A typical chit fund scheme involves the operator collecting a large amount of money from investors and paying returns from their own money or the money collected from subsequent investors, rather than from the profit earned by the person or the entity operating such schemes.
“This year in March, the MCA had ordered the SFIO to launch probe against 185 companies involved in the chit fund fraud but even after nine months the SFIO has not come up with any substantive results in these cases,” the source quoted said.
“The SFIO was given prominence when the Saradha chit fund scam broke as it was the SFIO’s investigation that led to the conviction of the owners of the Saradha group of companies. The SFIO is currently flooding with cases related to the ponzi scheme fraud,” a senior SFIO official told The Sunday Guardian.
“Even on 18 December, the MCA ordered the SFIO to launch an investigation against 63 companies for allegedly indulging in illegal money pooling activities or Ponzi schemes. The count of such companies is increasing and there is an urgent need of a well coordinated action against those involved in such activities,” the SFIO official said.
The Saradha financial scandal was a major financial scam and allegedly a political scandal caused by the collapse of a Ponzi scheme run by the Saradha Group, a consortium of over 200 private companies that was believed to be running collective investment schemes, popularly but incorrectly referred to as the chit funds in eastern states of the country.
“Investigation in the cases related to the chit fund scam is time consuming as it involves jurisdiction of several states and requires a proper coordination. Multiple laws and lack of clear guidelines also makes it difficult to complete a time bound investigation,” said the SFIO official.
The Central government is preparing to bring a law to regulate chit fund schemes, a savings and investment instrument that has been used to cheat lakhs of poor people across the country since the 1980s.
According to the MCA, there are over 30,000 registered chit fund companies operating in the country but the number of such companies is 40 times more for the unregistered one. As per the Association of Chit Funds (AIACF), the data estimated business size of the total registered chit fund companies is around Rs 35,000 crore.