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As a multi-agency probe continues in Saradha scam, findings of one official investigation suggests that the group floated at least 279 companies to channelise money collected from gullible investors as part of a vast 'ponzi' network.
Most of these firms have been found to be 'inoperational' and were utilised for the sole purpose of multi-routing of funds to hide the money trail, while close to Rs 2,500 crore were raised by just four companies.
The probe, conducted by the corporate affairs ministry's white-collar crime investigation agency SFIO, also found that these four companies collected 96 per cent money from small investors who deposited less than Rs 50,000 each. The money was mobilised through a vast network of nearly 3 lakh agents, sources said citing an over 500-page SFIO probe report.
The scam, wherein lakhs of investors in West Bengal and neighbouring states were lured into illegal money pooling activities, came to light early last year amid allegations that a section of Trinamool Congress leaders were involved.
Initially, it came out to be known as 'Saradha chit fund scam' although none of Saradha group entities were registered as 'chit funds'. However, it has become the first major case in India to officially get a 'ponzi' tag after submission of final probe report of the Serious Fraud Investigation Office to the government.
Like a typical ponzi scheme, Saradha was found to be paying returns to older investors from money collected from newer subscribers to its 'bonds and policies'.
Such activities came to be known as ponzi schemes after Charles Ponzi, who became notorious in the US 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.
In its over 500-page probe report, SFIO also concluded that Kolkata-based Saradha group was into money market operations but camouflaged it as real estate activities.
"The intention to defraud is evident from the fact that funds mobilised were not productively utilised for generating surplus. Rather, funds were swindled away in acquiring loss making media companies for extraneous reasons and misappropriating the funds," SFIO said.
The probe agency has recommended action against Saradha group and its directors on accounts of more than 20 violations including falsification of accounts.
Observing that the West Bengal police only made available ‘limited information’, SFIO said that "detailed investigation could be made only in respect of the four fund raising companies Saradha Printing & Publication Pvt Ltd, Bengal Media Pvt Ltd and Global Automobiles Pvt Ltd".
According to SFIO, Saradha Group chief Sudipta Sen, who is currently in jail, was a director in 160 companies and his son Subhojit Sen in 64 companies.
The SFIO, however, could not definitely establish the money trail for utilisation of funds, as most transactions took place in cash. The funds routed through banking channels were mostly used for acquisition of 'assets and other investments'.
The case took an interesting turn recently after suspended Trinamool Congress MP and another Saradha scam accused Kunal Ghosh allegedly tried to commit suicide in jail.
The SFIO has recommended a Central Bureau of Investigation probe against top executives of Saradha group, a West Bengal minister and top police officers, among others, as also into payments made to football clubs and various well-known individuals, among others.
In the wake of huge public protests, the corporate affairs ministry had asked the SFIO in April 2013 to probe the case. The scam, wherein lakhs of investors in West Bengal and neighbouring states were lured into illegal money pooling activities, came to light early last year amid allegations that a section of Trinamool Congress leaders were involved.
In its voluminous report, the SFIO said none of the Saradha group companies is registered as chit funds under the Chit Fund Act, 1982. The companies cheated the public at large by inducing them to deposit their money in "various unsustainable and camouflaged" schemes.
Noting that the Saradha group of companies were having meagre income from their declared business activities, the SFIO said these entities were not in a position to repay money garnered from the public.
The funds were purportedly collected for real estate and, tour and travel businesses but investors were not provided land or tour and travel packages while refund was made to some investors from fresh deposits of new investors.
Four fund-collecting companies in the Saradha Group had a tree-like structure of marketing associates in 19 levels where the person mobilising the deposit got direct commission.
"The directors of the company knew from the very beginning that it would not be possible for the company to return the deposits on maturity as promised, because it had not viable business to generate such high returns," SFIO said.
Among others, the probe agency found serious financial mismanagement and siphoning off funds by promoters. The West Bengal police provided only limited information related to the case, due to which the agency had to depend on third party sources including the Enforcement Directorate, THE Income Tax Department, Sebi and employees of the group.
"... the investigation team could not lay hands on the original books of the accounts or other original documents of the Saradha Group as the same were in the custody of the West Bengal Police and repeated requests did not yield any result.
"Only limited information was made available by the police authorities," SFIO said, while adding that "despite the best efforts, the requisite level of cooperation could not be obtained from the state police".
The West Bengal police started investigation into the case before the central government ordered the SFIO probe. Due to non-availability of documents, employees and directors, SFIO could conduct detailed probe only in respect of four fund-raising companies of the group -- namely Saradha Realty India Ltd, Saradha Tours & Travels Pvt Ltd, Saradha Garden Resorts & Hotel Pvt Ltd and Saradha Housing Pvt Ltd.