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BW Businessworld

Sebi Gets More Powers For Ponzi Crackdown

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Giving regulator Securities and Exchange Board of India (Sebi) more teeth to take on ponzi operators and others defrauding investors, government on 17 July decided to arm the market regulator with direct powers to conduct search and seizure operations, attach properties and access call data records of suspected defaulters.

A proposal to amend the Sebt Act and other relevant regulations was approved by the Union Cabinet to give Sebi greater powers to tackle all kinds of money collection schemes, as also to help it more effectively take on the defaulters in the stockmarkets, sources said.

These amendments have been finalised after detailed consultations with the Securities and Exchange Board of India (Sebi) itself, other regulators, as also with various ministries and government departments.

Once the amendments come into effect, the regulator would have direct powers to carry out search and seizure operations and attach properties of defaulters.

Besides, Sebi would have powers to seek information, such as telephone call data records, from any persons or entities in respect to any securities transaction being probed by it.

The capital market watchdog has been seeking an overhaul of regulations as well as mandate for a long time, given the changing nature of the securities market in general, and newer tools being used by manipulators to take gullible investors for a ride, in particular.

Currently, Sebi can conduct search and seizure only after approval from the Chief Metropolitan Magistrate, but this provision is often seen as delaying proceedings and hampering the confidential nature of probe.

A Cabinet note in this regard was floated by the Department of Economic Affairs to other departments in the Finance Ministry, as also to the Corporate Affairs, Home, Law and Telecom ministries, along with to the Reserve Bank of India, Planning Commission and Prime Minister's Office for their comments and feedback. The government decided to accept most of the proposals made by Sebi in this regard.

With regard to regulation of Collective Investment Schemes (CIS), the proposal called for Sebi being empowered to deal with all kinds of investment schemes involving pooling of funds totalling Rs 100 crore or more. Also, any investment scheme floated by a 'person' and not only a 'company', has been proposed to be brought under Sebi's jurisdiction for CIS activities.

The amendments seek to bring all kinds of ponzi schemes, which are thriving in various semi urban and rural areas at the expense of gullible investors, are brought under Sebi's oversight, which itself would be made much more effective to safeguard investors from being defrauded.

The proposals also called for special courts to be set up to deal with offences under securities laws and to recognise the counsels representing Sebi to be deemed as public prosecutors.

With regard to powers to attach properties, the current provisions do not provide for effective protection of investors in cases where there is fraudulent diversion of monies raised from investors such as 'vanishing companies' and 'Collective Investment Schemes'.

In cases where Sebi passes orders for refund of money raised fraudulently from investors, the concerns have been there with regard to the enforcement of such directions since the regulator does not have any direct powers to attach movable or immovable properties.