For the Trinamool Congress, neither does this rose smell sweet nor does this valley look green. Two of the party’s big leaders — Tapas Pal and Sudip Bandyopadhyay — allegedly linked to the Rose Valley scam were recently arrested by the CBI.

What is it?

The Rose Valley scam is an old-fashioned Ponzi scheme — promise the moon, collect and rotate money in loop until the fun finally stops. Entities affiliated to the group — Rose Valley Real Estates and Constructions and Rose Valley Hotels and Entertainment — garnered thousands of crores from investors, primarily in the eastern States. These sums were ostensibly instalments for property purchases or holiday packages. But investors also had the option of getting their money back with a tidy interest — up to 21 per cent annualised. On being confronted by market regulator SEBI that started getting complaints from various authorities, the Rose Valley entities resorted to the Indian rope trick — delay and obfuscate by appealing against the SEBI notice.

Eventually, in July 2013 and June 2014, the SEBI established that the schemes were ‘collective investment schemes (CIS)’, which had failed to register with the regulator. The schemes were ordered to be wound up and the money refunded to investors. As can be expected in such schemes, there was not much money to go around at this stage, and thousands of investors were left in the lurch. Meanwhile, Rose Valley also came under the scanner of the Enforcement Directorate (ED) and CBI after the Supreme Court’s instruction to probe shady companies raising funds from small depositors — a fallout of the Saradha scam. It’s a big one, this — the sleuths put the Rose Valley scam at around ₹17,000 crore; the small depositors association pegs it much higher at around ₹40,000 crore.

One thing led to another, and in 2015, Gautam Kundu, the flamboyant chairman of the Rose Valley group was arrested. In its heyday, the group bankrolled, among other glamorous ventures, many Bengali flicks and was also a sponsor of the Kolkata Knight Riders IPL team.

Why is it important?

Ponzi schemes in India come in many shapes and sizes. While Sahara’s optionally fully convertible bonds (OFCDs) were one specie and Saradha’s unregistered chit fund another, there have been a variety of get-rich-quick schemes that defy all conventional definitions of a financial product. SEBI’s investigations have found ponzi schemes accepting instalments from investors for purchase of agricultural land, goat rearing, emu growing, teak orchards, holiday time-shares and potato farming. Many of them have mopped up crores from gullible investors.

Given that none of the existing financial market regulators have jurisdiction over such ‘innovative’ asset classes, an omnibus CIS regulation has been formulated, which gives SEBI sweeping powers to oversee all schemes that pool investor money. But while the intent is laudable, the problem is that none of theses shady operators are willing to register as CIS.

If SEBI wins its battle against large CIS operators such as Rose Valley, hopefully that will bring other such schemes into its regulatory ambit.

Why should I care?

Know that any financial scheme that invites subscriptions to generate a return, from many investors, is a CIS and must be registered with SEBI. Else it is illegal. Being able to avoid a shady scheme could save you quite a packet.

The bottomline

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