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Regulators Bust Major Investment Scam On Social Media

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In one of the biggest cross-border regulatory cooperation, markets watchdog the Securities and Exchange Board of India (Sebi) has helped its counterpart in the US bust a major investment scam being run through online social media platforms.
The "Profit Paradise" scam was being run by two Indians -- one based in Mumbai and another in Hyderabad -- in the name of a "High Yield Investment Product (HYIP)" wherein gullible investors were being enticed through pervasive social media pitches on Facebook, Twitter, Google Plus and YouTube.
Such FYIP schemes have become very popular on various online platforms, wherein the operators solicit investments in securities, but most of them have turned to be yet another frontier for defrauding gullible investors in name of high and quick returns.
In the latest case, the operators of "Profit Paradise" were inviting investors to deposit funds that would supposedly be pooled with other investors' funds to make "huge profits" in forex, stocks, and commodity trading.
Although operating from India, they disguised Profits Paradise's physical location by providing the false Internet data, indicating that Profit Paradise's operations were within the United States when they were not.
While probing the case, the US markets regulator SEC (Securities and Exchange Commission) sought assistance from its peers in India, Canada and Hong Kong.
After completing the probe and announcing charges against the two Indians, Pankaj Srivastava and Nataraj Kavuri, SEC said it "appreciates the assistance of the Securities and Exchange Board of India (Sebi) as well as the Autorite des Marches Financiers in Quebec, the Ontario Securities Commission, and the Securities and Futures Commission in Hong Kong."
The case is being seen as one of the biggest in terms of cross-border cooperation among regulators to crack down on illicit investment schemes.
Cross-border Cooperation
Both Sebi and SEC are members of International Organisation of Securities Commission (IOSCO), an international policy forum for securities regulators that also sets global standards for securities regulation.
Sebi and SEC are also signatory to the IOSCO MMoU which represents a common understanding amongst its signatories about how they will consult, cooperate, and exchange information for capital market enforcement purposes. The MMoU sets an international benchmark for cross-border co-operation.
In the present case also, Sebi extended all necessary assistance to the SEC within the framework of IOSCO-MMoU.
As per latest available data, Sebi received as many as 94 requests from overseas securities regulators for information during 2013-14 -- more than double of what it had got in each of the two preceding fiscal years.
Sebi had received 40 requests from foreign peers in 2012-13, while it had got 37 requests in 2011-12.
At the same time, Sebi made 17 requests to capital markets regulators in other countries for information in 2013-14 as against 9 requests in the previous financial year.
This is the highest number of requests sent out by the Indian market watchdog since 2011-12.
The capital market regulator had sent out 9 requests each for regulatory assistance in 2011-12 and 2012-13 to foreign securities market watchdogs.
Sebi has in place a robust system for information sharing and coordination with foreign regulators to nab manipulators and fraudsters operating across boundaries in a globalised world.
In 2003, Sebi had signed the IOSCO multi-lateral memorandum of understanding (MMoU) for mutual assistance on enforcement and compliance of regulations with several countries including Securities Exchange Commission of US.
One of the IOSCO principles require the regulators to establish information sharing mechanisms, which set out when and how they will share both public and non-public information with their domestic and foreign counterparts.
"As a crucial part of its commitment towards the IOSCO MMoU concerning consultation and cooperation and the exchange of information, to which Sebi has been a signatory since April 2003, Sebi provides cooperation and facilitates exchange in other jurisdictions," the market regulator said in its latest annual report for the year 2013-14.
In the Profit Paradise case, SEC has charged Pankaj Srivastava and Nataraj Kavuri of offering "guaranteed" daily profits by anonymously soliciting investments for their purported investment management company.
The SEC has charged that the guaranteed returns were false, and that the investments being offered bore the hallmark of a fraudulent high-yield investment program.
Srivastava and Kavuri attempted to conceal their identities by supplying a fictitious name and contact information when registering Profits Paradise's website address. They also communicated under the fake names of "Paul Allen" and "Nathan Jones".
After the SEC began its investigation into the investment offering, the Profits Paradise website was discontinued.