SFIO has completed investigation into the affairs of 14 companies of the Saradha Group of Companies in connection with what has come to be known as the ‘Chit Fund Scam’ which involved a number of schemes carrying unsustainably high rates of interest. The investigation has concluded that schemes run by such companies were ‘Ponzi Schemes’ i.e. arrangements where the primary source of payment to subscribers is the collections made from newly enrolled members rather than from income generated from investments.

2. The companies, their promoters, directors and managerial personnel have been found to be guilty on many counts for violation of various provisions of the Companies Act, 1956 including Sections 58A and 628 dealing with illegal collection of deposits and false statements, etc. Companies of the group which were declared by SEBI to be carrying out unauthorized ‘Collective Investment Schemes’ (CIS) will be prosecuted for violation of the SEBI Act instead of Section 58A of the Companies Act, 1956, as the former carries longer terms of imprisonment.

3. Several instances of violation of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 have also been found. As prosecution under this law are to be initiated by the State Governments concerned, the Report along with evidence is being shared with the CBI. The Report is also being shared with SEBI for proceeding against companies which were found to be running unauthorized/ illegal Collective Investment Schemes (CIS).

4. SFIO has also found evidence of violation of several provisions of the Indian Penal Code (IPC). Such Sections are 107 (Abetment of Crime), 120B (Criminal Conspiracy), 403 (Dishonest misappropriation of property), 406 (Criminal breach of trust), 409 (Criminal breach of trust by public servant), 415 (Cheating), 418 (Cheating with knowledge that wrongful loss will be caused), 419 (Punishment for cheating by personation), 477A (Falsification of accounts). Since, CBI is now investigating cases under the IPC under orders of the Supreme Court, it has been decided to share evidence collected by the SFIO with CBI so as to avoid duplication in prosecutions.

Ponzi schemes findings trigger coordinated criminal and regulatory action against promoters for illegal deposit collection and unauthorized investment schemes. SFIO concluded several group-run schemes were Ponzi schemes sustained by new subscriptions rather than investment income; found violations including illegal deposit collection and false statements under the Companies Act, unauthorized collective investment schemes subject to securities prosecution, breaches of the Prize Chits and Money Circulation Schemes (Banning) Act, and multiple IPC offences (conspiracy, cheating, misappropriation, falsification). SFIO is sharing its report and evidence with investigative and securities authorities to coordinate prosecutions.