Sebi cautions against illicit high-return schemes

Asking the general public to be cautious of such illicit schemes, the regulator also said it offers basic financial education to investors free of cost.

Market regulator Sebi on Wednesday cautioned investors against putting their hard earned money in unregulated schemes floated by companies illegally raising funds with promise of exorbitant rates of return.

Such companies are also indulging in issuance of Cumulative Convertible Preference Shares and Cumulative Redeemable Preference Shares without having necessary authorisations or regulatory approvals, the capital markets watchdog said.

Sebi, which has been given powers to take action against all unregulated money pooling schemes worth over Rs 100 crore (Rs 1 billion) besides all public issuances of securities, has issued this fresh caution notice at a time when a large number of people have been duped by numerous schemes in various states and enforcement action is underway against such operators.

"It has come to the notice of the Securities and Exchange Board of India that some companies/entities are illegally mobilising funds from the public by making false promise of exorbitant rates of return or interest under various schemes or arrangements," the regulator said.

It also said that schemes offered by cooperative societies, deposits accepted by NBFCs or companies declared as Nidhi or mutual benefit societies under Companies Act, pension or insurance schemes framed under Employee Provident Fund laws or Chit Funds Act are outside Sebi's jurisdiction if they are regulated by some other regulator or law.

"Investors are cautioned not to invest in any schemes or arrangements which are unregulated. Sebi does not guarantee the repayment of money by these companies or entities," it said.

Asking the general public to be cautious of such illicit schemes, the regulator also said it offers basic financial education to investors free of cost and they can contact its regional or local offices for more details about the same.

The latest caution notice comes within days of Sebi warning the investors and general public against dealing with entities that are continuing to collect funds even after being barred to do so.

Making public a list of 51 entities, which included many from West Bengal, the capital market watchdog had said last week that investors should not be lured towards illegal schemes that claim to offer much higher returns than banks and other registered entities.

Sebi had also asked the investors to report such unauthorised money pooling activities to the market regulator, state authorities, including police and other agencies.

Sebi has been given greater powers to deal with the ponzi menace, which typically involves money being raised from investors with promise of high returns and old investors being given returns from funds collected from new subscribers to such schemes.