Sebi gets more power to clamp down on ponzi schemes

The government on Thursday gave more powers to market regulator Securities and Exchange Board of India to crackdown on ponzi schemes, access phone call records to check insider trading and carry out search and seizure operations.

The ordinance amending the securities laws was promulgated by President Pranab Mukherjee within a day of the Union cabinet approving the proposal to give more powers to the SEBI.

"The government believes that these amendments would give the Sebi the legal backing to clamp down on unscrupulous entities that are using newer methods to take gullible investors for a ride," an official statement said.

Amid rising criticism that enough is not being done to curb ponzi schemes, the government said: "the promulgation of the ordinance demonstrates the firm commitment and resolve of the government to act with speed and alacrity to curb irregularities and frauds in securities market".

As per the amended law, Sebi can regulate any money pooling scheme worth Rs 100 crore or more and attach assets in cases of non-compliance, it said adding the Sebi chairman would have the authority to order "search and seizure operations".

The market watchdog, the statement said, would now have powers to seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being investigated by it.

The ordinance allows setting up of special courts to speed up Sebi related cases. "Establishment of special courts enabled by this ordinance would fast-track the resolution of pending Sebi related cases," the statement said.

The amendments would clear the air over regulatory gaps and overlaps with regard to types of instruments used in raising funds.

"Owing to new and innovative methods of raising funds from investors, such as art funds, time-share funds, emu /goat farming schemes, there has been regulatory gap/overlap regarding types of instruments/fund raising," the statement said.

Even though collective investment schemes come under the purview of Sebi, the regulator receives complaints against illegal fund raising activities of certain companies that claim they do not fall under the CIS regulations.

"With the amendments in force now, Sebi would have powers to regulate any pooling of funds under an investment contract involving a corpus of Rs 100 crore or more, attach assets in case of non-compliance and Chairman Sebi would have powers to authorise the carrying out of search and seizure operations, as part of efforts to crack down on ponzi schemes," it said.

Massive public outrage was witnessed in the wake of recent chit funds scam perpetrated by Kolkata-based Saradha group that defrauded thousands of investors of their hard earned money.

These amendments to the SEBI Act, SCR Act and the Depositories Act were finalised after detailed consultations with Sebi and other Ministries and Departments including the home affairs ministry, the department of telecom, the corporate affairs ministry and the department of financial services, among others.