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SEBI bill to tackle ponzi schemes moved in Rajya Sabha

Tuesday, 12 August 2014 - 4:22pm IST | Place: New Delhi | Agency: PTI

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The crucial Securities and Exchange Board of India (SEBI) Bill aimed at tackling various ponzi schemes and providing more teeth to the financial sector regulator to crackdown on such fraudulent investment schemes was taken up in the Rajya Sabha on Tuesday.

Moving the Bill, Finance Minister Arun Jaitley said the law essentially deals with ponzi schemes and would strengthen SEBI's hands to deal with them, besides ensuring speedy trial of cases by setting up various courts. The Securities Laws (Amendment) Bill, 2014, has been brought in the backdrop of lakhs of small investors being duped by fraudulent investment schemes like in the alleged Saradha scam.

The new law will empower SEBI investigators to conduct searches and seek information from suspected entities, both within and outside the country. However, as a safeguard, any search operation can be conducted only after approval of a designated court set up by the government in Mumbai. The Bill aims to empower the capital market watchdog  by giving powers such as authority to seek call data records.

Jaitley said previous Finance Minister P Chidambaram had proposed that SEBI could have power to conduct search operations without permission, even though the original bill had a provision that it could conduct such operations after seeking permission of the area Magistrate.

The new government has proposed some changes and a designated court has been earmarked in Mumbai for the purpose. An ordinance to empower SEBI to deal with ponzi schemes was promulgated thrice during the previous UPA regime but it could not be converted into an Act.

Jaitley said as per the new Bill, the profits earned out of illegal activities will be confiscated and used for investor protection fund to create investor awareness. The bill was passed by Lok Sabha last week. The Finance Minister said the nature of security market has changed over the last decade and thus the nature of violations have also changed and power of regulators too need to be re-defined.

As per the bill, any unregistered scheme having a corpus of Rs 100 crore or more would be deemed as a collective investment scheme.

Participating in the discussion, T Subbarami Reddy said the capital markets were interlinked with the Indian business and people have become afraid of investing in the capital market once some fraud surfaced. "Several companies have disappeared from the country after duping investors. The economic growth has been halted due to the scams. If one scam surfaces, investors are scared of making investments. The 2-4 scams that have surfaced have shattered and harmed economic growth and the capital market," he said. "SEBI should safeguard the interest of investors. I welcome the move," he said, adding people need to be properly educated.

He also pointed out to red-tapism in SEBI and said it takes a long time to give permissions even when it does not have much powers and called for safeguards against it. "I congratulate Arun Jaitley for bringing the new bill," he said.

VP Singh Badnore said the bill will help in giving more teeth to the SEBI by giving it powers to search and seize premises of defaulters. However, he raised questions about ponzi schemes where the pooled sum of investments is less than Rs 100 crore and asked government about steps to be taken in this regard.

Narendra Kashyap supported the bill saying government should see if the SEBI can also keep an eye on such schemes across the country and also whether the regulator can be asked to check fake Indian currency notes.

D Bandyopadhyay backed the bill saying government must crack the whip against illegal investors who are duping the poor people of their hard-earned money. 

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