FOLLOW-UP STORY A 5,000-page chargesheet filed in the SpeakAsia Ponzi scheme — which cost 2.4 million Indians precious savings — shines a light on the lack of oversight in India’s increasingly complex financial environment.
Every morning, just before breakfast, 44-year-old Mukesh Bisht opens his laptop and checks his email. He patiently reads every new message, including the spam posts.
Many of the messages are abusive; some threaten him with dire consequences; a very few are polite requests. Bisht doesn’t need to read the names. He knows who they are from — ‘downline’ investors, people he encouraged to sign up for what turned out to be the multi-crore SpeakAsia scam.
Regardless of the tone, all the emails have a uniform demand: Bisht should compensate the senders for encouraging them to enrol in a get-rich-quick scheme with Singapore-based SpeakAsia Online Limited (SAOL).
Bisht slips back into his chair, looks out of the window and curses. “I take a shower only after checking the email,” he says. “It helps me get over the abuse that is thrown at me every day. I feel duped and helpless.”
Bisht, based in Dehradun, is among the 2.4 million Indians who fell prey to SAOL’s scheme, only to be duped later after the promoters disappeared with their booty.
The company had asked investors or “panellists” to fill in online survey forms every week to earn Rs. 52,000 a year. To sign up, they said, you had to ‘invest’ Rs. 11,000 annually; you would recover that cost in less than three months, they promised.
SAOL promised additional commissions if you enrolled more members.
In reality, the consumer surveys had no end-user; SAOL had no business-linked revenue stream.
“I recovered my initial capital at Speak Asia, but I am worried about the money of people who joined on my advice,” says Bisht. “What will I say to them if they never get their money back?”
Bisht’s only hope is the recent arrest of alleged scheme kingpin Ram Sumiran Pal in India, following a multi-agency probe into what experts say was a “systematic financial swindle” of Rs. 2,200 crore.
The Mumbai police recently filed a charge sheet against SpeakAsia’s promoters, detailing how unsuspecting investors were lured into parting with hard-earned savings. It contained 5,000 pages.
The type of fragile financial pyramid used by SpeakAsia — designed to defraud investors — is called a Ponzi scheme.
It is named after Carlo Ponzi, who promised his ‘investors’ a 50% profit in 45 days or a 100% profit in 90 days, claiming that the promised cash would roll in from the sale in the US of postal coupons sold at a discount in other countries.
There was nothing illegal about trading in postal coupons. Ponzi could have made a reasonable sum in this trade. But he took an innovative route instead. He paid the early investors using money collected from newer entrants, and continued the cycle until he finally faced investigation over his business practices and it emerged that he had, meanwhile, duped his investors of a total of about $20 million.
His early Indian successors followed more or less the same model, usually using the lucrative real-estate, hospitality and entertainment sectors as the lure. But the foreign front companies that later entered the growing Indian market from the US, Malaysia, Singapore and Bangladesh had an easier route — the internet.
“No data is retrievable from those who operate on the Net, except data stored on their own servers, which we cannot access,” a top government source told HT.
At a recent inter-departmental meeting, for instance, the Serious Frauds Investigations Office (SFIO) of the union ministry of corporate affairs raised an alarm about a US-based operator. But by the time detailed information could be obtained and passed on to state governments, “the money was taken out of India and lost for good”.
For the lakhs of unsuspecting investors, what follows is an ordeal of attempting to retrieve the lost capital, often without much success.
In October 2011, 28-year-old Kanpur resident Sameer Manchanda borrowed `11,000 from his relatives to become a SpeakAsia Online panellist.
“Initially, as the interest rolled in, it seemed like a dream job to me,” he says. A few months later, SpeakAsia ceased all payments and his down-line investors began asking what was going on. “All my dreams came crashing down,” he says.
India’s regulatory architecture was not equipped to prevent such systematic financial swindles. Only recently did the government promulgate an ordinance empowering India’s market regulator, the Securities and Exchange Board of India (Sebi), to crack down on Ponzi schemes.
With the amendments in force, Sebi now has the power to regulate any pooling of funds under an investment contract involving a corpus of Rs. 100 crore or more and attach assets in case of non-compliance. The capital market regulator can also seek information about people or organisations that it suspects may be involved in illegitimate transactions.
SpeakAsia, in that sense, acted as a wake-up call.
The sorry plight of lakhs of small savers duped by such deposit-collecting firms is symptomatic of a wider malaise that runs deep in the Indian economy.
At the root are two primary attributes that continue to characterise the Indian economy — lack of access to basic conventional banking services for a large number of people, and absence of regulatory oversight.
As a result of these factors, deals and schemes thrive outside the financial system, creating a web of transactions that obscure the sources of slush funds.
More than four out of every ten adults in India still does not have a bank account.
Access to banking services is central to preventing financial fraud. Too much hard-earned money is at stake for authorities to any longer look the other way.
The type of fragile financial pyramid used by SpeakAsia — designed to defraud investors — is named after Carlo Ponzi, who orchestrated a massive scam along the same lines in the US, in the 1920s. His scheme is believed to have cost investors a total of $20 million
In September this year, the government of India passed an ordinance titled The Securities Laws (Amendment) Second Ordinance, which seeks to amend the Sebi Act, the Securities Contracts (Regulation) Act and the Depositories Act.
This ordinance gives sweeping powers to market regulator Sebi (the Securities and Exchange Board of India) to crack down on Ponzi schemes, seek call data records, and carry out search and seizure operations on promoters.
It also empowers Sebi to question dubious entities that use ‘innovative’ investment schemes to dupe investors, and allows it to regulate money-pooling schemes worth Rs. 100 crore or more, attaching assets of a company in case of non-compliance with norms.
The ordinance is now awaiting approval by Parliament.
Riches to rags: major ponzi schemes in India
The emu scam, Tamil Nadu
In 2006, Susi Emu Farms introduced an investment scheme involving the rearing of the Australian bird, in a small town in the Erode district of Tamil Nadu.
The scheme required an initial investment of Rs. 1.5 lakh from each ‘investor’ and promised a return of at least Rs. 1.44 lakh within two years.
The firm said the money would come from the sale of emu meat, skin, feathers and eggs, even though the selling price of these items on the market was never very high.
The company initially paid investors the promised returns, to prompt others to join in, but in 2012 the emu bubble finally burst and investors discovered that they had been duped of a total of Rs. 500 crore.
The Saradha scheme, West Bengal
The Saradha Group ran a collective investment scheme under the garb of a chit fund that collapsed in April 2013.
After the fraud became public, it came to light that this was actually a Ponzi scheme that relied on paying old investors though funds collected from newer entrants.
Though official figures are not yet available, industry sources peg the total worth of the Saradha scam at about Rs. 30,000 crore, with close to 1.7 million ‘investors’ duped.
Sudipta Sen (above), erstwhile chairman of Saradha Group, has since been arrested and investigations are underway.
The Gold Sukh scam, Rajasthan
Gold Sukh Trade was a little-known Jaipur-based firm until November 2011, when it created ripples in the country over news of a Rs. 200-crore fraud.
Managing director Narendra Singh and senior executives allegedly duped about 2 lakh people across Rajasthan in a Ponzi scheme where the company assured investors that their money was being invested in gold and promised a 150% increase in their investment in 18 months.
Singh, his wife, five other directors of the firm and several executives were arrested in the case. Singh died of a heart attack while in police custody. Investigations into the scam are still underway.
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