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| The Saradha fraud | | Frequent regulatory failure is worrying | |
ONCE again, ill-informed
investors driven by greed
have lost money — this time in West Bengal. The Kolkata-based Saradha group, floated in 2008 by a Naxalite-turned- tycoon, raised Rs 2,000 crore from 2.5 lakh investors, promising lucrative returns. Chit funds are supposed to be monitored by state governments and are allowed for a short period of eight to 10 months and limited to a small number of people. However, when entities registered as companies run what is called the Ponzi or "collective investment scheme" on a large scale, it becomes difficult to regulate them.
The Securities and Exchange Board of India (SEBI) started an inquiry into the Saradha affairs in 2010 but the group tried to scuttle it by submitting as many as 230 boxes of documents following an example set by the controversial Sahara group. The state government and the Centre have ordered their separate inquiries. In a letter to the CBI the Saradha group chief, Sudipta Sen, has added a new dimension to the case by claiming that politicians from West Bengal, Assam, Orissa and Jharkhand have taken money from him, used and "back-stabbed" him. Among those named are two MPs belonging to the Trinamool Congress. Given the powerful interests involved, the outcome of the inquiries should not get influenced.
Chief Minister Mamata Banerjee, meanwhile, has resorted to damage control. She has promised a Rs 500 crore fund to meet the loss of depositors. She has raised the tax on cigarettes by 10 per cent to collect Rs 150 crore and does not yet know from where the balance will come. It is uncommon for a government to compensate victims of a private fraud. The depositors are mostly poor and middle-class people, constituting the vote bank of the Trinamool Congress. Some have committed or attempted suicide. Their continuing protests could harm Mamata's political prospects in the coming general election. Using the taxpayers' money, she has tried to buy political peace. With corporate frauds becoming common and influential perpetrators enjoying political patronage, the need for a stricter regulation of the financial sector has become imperative. |
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