Rose Valley Case, A Chit Fund Scam
Post on 14,March 2017   2:00 AM
By - PolyEyes Staff
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Two of the party’s big leaders — Tapas Pal and Sudip Bandyopadhyay from All India Trinamool Congress (TMC) party — allegedly linked to the Rose Valley scam were recently arrested by the CBI.

Rose valley case: It is a chit fund scam where two entities Rose Valley Real Estates and Constructions and Rose Valley Hotels and Entertainment, managed to pool in Rs 18000 crores from investors as installments for property purchases promising extraordinary returns of 21%.

Rose Valley, as per the ED estimates reportedly collected more than Rs. 15,000 crore from depositors across India, especially west Bengal, Assam and Bihar

In March 2015, the ED arrested group’s chairman Gautam Kundu after interrogation at his salt lake office in Kolkata, however the all India small depositors association pegs the amount at close to Rs 40,000 crore - 16 times the size of the Saradha scam huge amounts were allegedly siphoned off and transferred to other accounts

Rose Valley hotels & entertainment reportedly owns nearly 23 properties across India

SEBI had prohibited the sale of real estate by Rose Valley in January 2011 and the state government had followed suit.

There are as many as 30 companies under the Rose Valley banner on paper, which includes companies such as Rose Valley Airlines, Rose Valley Microfinance, Rose Valley Fashion, Rose Valley Consultancy, Rose Valley Beverages, Rose Valley Infotech and Rose Valley Housing Finance, chairman also became a corporate agent of the LIC

Attracted to the false promise of high returns, unsuspecting people kept pouring in money, often their lives' savings, into such schemes.

Rose Valley was having a smooth run until 2012, when IRDAI raised objections on the way company was being operated

Other fraudulent monetary schemes:

Chit Funds: A chit fund is a type of saving scheme run by an individual or an institution.

Subscribers pool instalments to the chit fund. After a period, each subscriber gets the entire pooled fund after a discount cut by the chit fund.

The benefit of chit fund is that a subscriber can get a large amount of money in a short time.

As per Supreme Court, Chit funds are a part of concurrent list, Chit funds are registered by the State governments. The unregistered ones are usually termed illegal.

The Prize chits and Money Circulation (Banning) Act 1978 usually defines the illegal Chit funds.

Ponzi scheme: It is an illegal investing scam promising high rates of return to investors.

It has no underlying assets i.e. it generates returns for older investors by acquiring new investors and not by earning returns/revenue by any assets like property etc.

Pyramid Scheme: It is an illegal scheme similar to Ponzi scheme.

While in a Ponzi scheme, participants believe of earning returns from any asset, participants in a pyramid scheme are aware that they earn money by finding new investors.

Reasons of such scams

 

  • Quick-get-rich attitude and greed in a consumeristic society. Shortcuts to being rich.
  • Multiplicity of regulations and confusion over jurisdiction.
  • E.g. Centre and State regulate chit funds whereas SEBI regulates other collective investment schemes.
  • Low financial literacy in the investorsabout such schemes.
  • Less paper work and least of the documents is required Poor regulation.

 

Steps taken by the government

 

  • Collective Investment Schemes regulationgives SEBI sweeping powers to oversee all such schemes that pool investor money.
  • RBI has advised banks to carry out quick reviews of accounts opened in the names such as market agencies and retail traders.
  • RBI has been sensitizing state governments on the Prize Chits and Money Circulation Scheme (Banning) Act, 1978and the appropriate action needed.
  • ‘Direct Selling Guidelines 2016’by SEBI clearly definesmoney circulation schemesand direct selling to help investigating agencies identify fraudulent players.

 

Direct Selling and Money Circulation guidelines 2016

 

  • Regulated by Department of consumer affairs.
  • It bars entities involved from charging any entry fee from agents.
  • It has also made certain formalities for appointment of monitoring authority at central and state level to deal with such money circulation schemes.
  • It prohibits such entities from using misleading and deceptive or unfair recruitment practices.

 

Conclusion: The basic aim of such saving and investment schemes is to dupe investors fraudulently. Therefore there is a need to resolve both the supply side problems like regulation deficit etc. along with demand side problems like poor awareness, to curb the financial losses to the economy due to these schemes.


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