Taking out chit funds

Multi-crore chit fund scams are back in news with the political storm over arrest of two Trimool MPs in connection with the Rose Valley case. West Bengal chief minister Mamata Banerjee has accused the Central government of ‘vendetta’ for her party’s furious opposition to Prime Minister Modi’s cash ban move. She has warned of tionwide protests even as Trimool supporters are besieging BJP offices in the state. Her political opponents and critics believe the outcry is deliberate — to deter further arrests of Trimool leaders found linked with the scamsters, and derail the probe altogether. For though Mamata Banerjee’s political stock remains high, her party’s image has taken some beating over the Saradha and Rose Valley ponzi schemes which defrauded thousands of small depositors across several states. Trimool MP and its leader in Lok Sabha Sudip Bandyopadhyay was a director in one of the Rose Valley companies, while the other party MP Tapas Pal and his wife earlier served on Rose Valley’s Board of Directors. Earlier, when the Saradha scam broke, two Trimool MPs in Rajya Sabha had come under the scanner with Srinjoy Bose resigning his seat and Kul Ghosh put behind bars. So when party supremo Mamata Banerjee alleges that the CBI is being used as a political weapon by the rendra Modi regime — it once again raises the issue whether investigation and law enforcement agencies can at all move against politicians without their motives being questioned, rightly or wrongly. The CBI in the past may have acted at the bidding of political masters, but this wicked circle has to stop somewhere. Reportedly, fresh evidence has cropped up in the Rose Valley chit fund case, prompting CBI and Enforcement Directorate to review their probe status last month. The ED then attached Rose Valley assets worth Rs 1,250 crore, including eight hotels with one located at Silchar.

In 2013 when Rs 2,500 crore Saradha ponzi scheme collapsed, it was already suspected that Rose Valley scam was far bigger. The Securities and Exchange Board of India (SEBI) estimated Rose Valley had raised over Rs 10,000 crore without approval and registration. As per ED estimates, the group collected around Rs 15,500 crore from depositors across the country, especially West Bengal, Assam, Bihar and Odisha. In turn, this figure pales in comparison to the Rs 40,000 crore estimate made by the small depositors association. Assam Police too has registered a case against Rose Valley for collecting Rs 1,006 crore through its holiday membership scheme until February 2012. Whether Saradha, Rose Valley or other chit funds, their modus operandi is distressingly similar — hoodwinking gullible depositors with promises of inflated returns on investment, and then collecting the money in the me of real estate, holiday travel, microfince and various products. The only way to keep funds flowing into these non-existent enterprises is to pay old depositors with money collected from new depositors. Obviously at some point, the latest batch of depositors will lose their money (locked in for definite periods) after the chit fund shuts shop and decamps overnight. It was after the Saradha scam broke that the Supreme Court ordered the ED and the CBI to probe all companies raising funds from small depositors, and before long, Rose Valley came under the lens. But many other shady operators are running ponzi schemes and illegally raising public deposits under the garb of multi-level marketing (MLM) or plantation schemes. Recently, the Reserve Bank identified as many as 194 such new entrants; the Serious Fraud Investigation Office (SFIO) is now all set to probe the old groups and new entrants. This broader investigation will focus on how these groups maged to secure registration from the Registrar of Companies, the influential persolities who helped in getting the companies registered, and how Central and state agencies acted after being intimated about their dubious activities. If political leaders allow this investigation to proceed to its logical conclusion, surely many big fish will be netted. Political rows like the one presently over Rose Valley case must not be allowed to stop the probe in its tracks.