Poll-Ponzi schemes under regulatory scanner

The Securities and Exchange Board of India (Sebi) has stepped up surveillance against portfolio schemes where operators are promising investors that their money would be invested in those sectors which are likely to benefit from a certain outcome of the upcoming Lok Sabha elections.

While promising big returns, these portfolio managers are also assuring to safeguard these investment by various hedging instruments in case the election results turn out to be different.

Sebi sources confirmed that one of the schemes that has come under scanner involves a ' collective investment scheme' wherein funds are being pooled in and the corpus would be used for investment in areas that emerge as high- focus avenues for the next government. Such schemes are in violation of capital markets norms and amount to mis- selling of investment products and defrauding of investors.

According to sources, illegal off- market 'dabba' trading, where bets are placed on shares outside the stock exchange, is also on the rise as electioneering has picked up momentum. Instances of dabba trading have surfaced in Mumbai, Indore, Rajkot and Delhi and Kolkata. Operators of these schemes are reportedly asking investors to sell their existing investment in stocks, mutual funds, bonds and other assets and switch to these novel schemes in order to make bigger returns.

Regulators are keeping a close watch for any sharp rise in redemption activities in capital markets in products such as mutual funds, hedge funds, insurance and portfolio management products.

Sebi has already enhanced its surveillance to thwart any attempts by listed companies to channelise illicit funds through capital markets or investment schemes for polls. There are also indications that many entities running illicit money- pooling schemes have lined up huge redemptions from fictitious investor accounts and this money could also find its way into election activities. The Election Commission is in touch with Sebi for any black money that may be routed into the campaign through stock markets. The Income Tax Department has set up a tollfree number for the public to alert it about any suspicious movement of large sums of cash in Delhi and Mumbai during the polls.

Courtesy: Mail Today