Banned Ponzi schemes not under regulatory purview: SEBI to SC

The Securities and Exchange Board of India (SEBI) today told the Supreme Court that banned Ponzi schemes do not fall under its regulatory purview and only the state governments concerned can control them. The stock market regulator also said banned activities cannot be regulated by any regulator and be just stopped, if it is intimated about such schemes or it takes suo moto cognizance.

“It is submitted that ponzi schemes do not fall under the regulatory purview of SEBI. The same is banned under Chit Fund and Money Circulation (Banning) Act 1978, and the concerned state government is the enforcement agency of the said law,” SEBI said in an affidavit, adding that only Collective Investment Schemes (CIS) are under its jurisdiction and these too can be stopped if not registered.

“Banned activities cannot be regulated by any regulator, except to stop the same if made aware of it. It is stated that CIS, within the domain of SEBI, is not banned activity, but is authorized only upon registration/permission of, as the case may be, with SEBI and in the absence of such registration such schemes are not allowed to operate and have to be stopped.

“Upon being made aware of the same, or suo moto coming to knowledge of such schemes, SEBI has been taking action by way of interim order and final order,” it said.

The response of the regulator came on a PIL filed by NGO ‘Humanity Salt Lake’ alleging inaction on the part of the government in regulating chit funds resulting in multiple scams across the country.

SEBI also told the apex court in its affidavit that it has been “alert and proactive in tackling the menace of unauthorized money mobilization”.

“During last three years, upon completion of examination with respect to the applicability of the SEBI Act, 1992 and regulations, SEBI passed interim order against 299 entities, including 76 CIS and 223 Deemed Public Issues (DPI),” it said, adding that it has referred 1657 cases to various agencies as activities of these entities did not fall in SEBI’s regulatory purview.