SFIO Submits Interim Report on Investigations Conducted Against 63 ‘Chit Fund’ Companies

Useful Information Collected from the Servers Located in India; Efforts on to get the Same from Servers Located Abroad

An interim report has been submitted by the Serious Frauds Investigations Office (SFIO) of the Ministry of Corporate Affairs (MCA) about investigations conducted against 63 ‘Chit Fund’ companies operating in eastern states of the country. While State Governments are the appropriate authorities for regulations of such ‘Chit Fund’ companies under the Chit Funds Act 1982, but keeping in view the larger public interest involved in these cases, MCA had in April 2013, entrusted SFIO with the investigation of 63 companies belonging to five groups. A Special Task Force (STF) was also set up in the SFIO to look into the functioning of the so called ‘Chit Fund companies’ in the country as a whole.

As per the report, useful information has been collected from the servers of the companies housed in India by using forensic technology. However, enforcement agencies are making all efforts to access information stored in servers located outside India. The report also observes that promoters of such companies have tried to take advantage of multiple legislations with overlapping jurisdictions. There has been proliferation of innovative financial products in the market due to technological advancement and extensive use of the internet to market such products to investors. The report notes that there has been evidence of financial mismanagement, diversion and siphoning off funds by the promoters. Due to non co-operation by the promoters of one of the group companies, SFIO had to resort to search and seizure operations, after obtaining appropriate court orders.

Corrective measures have already been initiated by the Government of India by constituting an Inter-ministerial Group to work out the modalities for better inter-agency coordination. Regulatory agencies such as the Ministry of Corporate Affairs, SEBI and RBI have already launched media campaigns aimed at cautioning investors not to fall prey to fraudulent companies.

SFIO will be submitting their final report to the Ministry by the end of December 2013.

Fraud investigations reveal diversion of investor funds and prompt regulatory coordination and cross-border data recovery efforts. SFIO investigated chit fund companies and found evidence of financial mismanagement, diversion and siphoning of investor funds; forensic data was recovered from servers in India while efforts continue to access servers abroad; promoters exploited overlapping regulatory jurisdictions; a Special Task Force and an Inter-ministerial Group have been formed to improve inter-agency coordination and regulatory agencies have launched investor caution campaigns.