Sebi warns public investors against high returns via illegal schemes

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Certain entities are taking cooperative society route to garner funds from investors after being barred by Sebi for running illegal schemes. Certain entities are taking cooperative society route to garner funds from investors after being barred by Sebi for running illegal schemes.
SummaryCertain entities are taking cooperative society route to garner funds from investors after being barred by Sebi for running illegal schemes.

Market regulator Sebi cautioned investors and the general public against entities making false promises of exorbitant returns through schemes being run without regulatory approvals.

In a public notice, the Securities and Exchange Board of India (Sebi) observed that some companies or entities are illegally mobilising funds from the public by making false promises of exorbitant rates of return under various schemes.

These companies are also indulging in issuing Cumulative Convertible Preference Shares (CCPS)and Cumulative Redeemable Preference Shares (CRPS) without the necessary authorisation and regulatory approvals, Sebi said.

Schemes made or offered by cooperative societies, deposits accepted by NBFCs, by companies declared as Nidhi or a mutual benefit society under relevant sections of the Companies Act, or pension and insurance schemes framed under the Employees Provident Fund, or chit funds are outside the purview of Sebi's jurisdiction, the regulator said, adding that their returns, therefore, cannot be guaranteed by it.

This warning comes in the wake of Sebi receiving complaints and communications from investors with regard to huge returns offered by various cooperative societies, including those linked to entities already under Sebi's scanner.

Sources said certain entities are taking the cooperative society route to garner funds from public investors after being barred by Sebi for running illegal schemes collecting money through various bonds and other securities.

While Sebi has informed the investors concerned that such schemes are not under its jurisdiction, their modus operandi is still being investigated as it has the powers to crack down on all illegal collective investment schemes worth Rs 100 crore or more.

In its public notice, Sebi said that "investors are cautioned not to invest in any schemes/arrangements which are unregulated. Sebi does not guarantee the repayment of money by these companies/entities."

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