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Suckered: Saradha Goes Bust and Frauds Depositors

One more sad story that emerged last week was a chit fund that went bust: The Saradha Group. Taking money from depositors all over the eastern states of Assam and West Bengal, particularly the North and South 24-Parganas districts, the company promised returns of more than 36%, and then offered agents upto 30% to just collect money.

One town saw agents earning upto Rs. 1.8 lakh per month in commissions. Some bought motorcycles and scooters, others were able to upgrade their lives substantially.

Obviously this kind of return is insane to promise, and it was a ponzi scheme – old depositors were paid off through new depositors, and everyone, including the agents, “renewed” their deposits.

The company also owned a media business, including a channel named “Tara Muzik” which has TV announcers crying live on the last day before it was shut down. Another publication named the "Bengal Post Daily” was shut down before Holi.

The company even pretended to operate a full motorcycle factory, with fake workers brought into a fake building on an area of 7.7 acres, to con depositors into thinking this was a real company!

Just before the depositors reached the factory, the workers would get dressed in their blue uniforms, rush to the shed where the assembling of motorbikes used to be done and pose in front of the conveyor belt as if they were really assembling the two wheelers.

And this carried on for at least two years, with the 150 workers being paid paid Rs. 10-15K per month. At this level, it’s a fraud of  gargantuan proportions.

People are ransacking offices of the company, taking what they can find. Not happy with just that, they’re even taking to stealing the property of agents who they blame for suckering them into this scheme. Some agents have left their homes, others have attempted suicide, and yet others join the protests since they were big depositors themselves.

The group’s chairman Sudipta Sen was arrested in Kashmir, and SEBI has planned to probe it further. SEBI doesn’t regulate Chit-fund companies (why?) so it will have to start right from scratch.

Sen was linked closely to a number of Mamata Bannerjee’s Trinamool Congress party seniors, and one of them was even employed by the Saradha group. This has caused some political trouble, but if you’ve seen “Didi” long enough, she will blame everyone else but herself for this.

Meanwhile, poor people will lose all their money. No one will be able to help. The trust is lost forever, and a few years later, another silly ponzi scheme will come along and sucker another group in the same place. The churn continues.

I have no advice for anyone. Anything that pays you 30% commissions – including ULIPs – is built to sucker investors. Anything above 5% is insane, no matter what anyone says; Agents getting more than this should be careful that they don’t face the wrath of investors later. For investors, the current thumb rule is 15% – if someone promises you much more, don’t fall for it.

But more importantly, we have to ask ourselves – even if you had given all these Saradha group investors a big form with font-size-18 letters saying “I understand that this scheme is RISKY” they would have still signed it. If that is the case, why do we even bother with the paperwork or with disclaimers? It is unnecessary, and makes life difficult for real product offerings (costs go up) and therefore, only the bad guys are left behind that find ingenious ways to steal your money.

Clear up the KYC mechanism and reduce paperwork; that is one solution. That will still not solve the ponzi scheme issue. The important part – and equally important alongside – is to give Mr. Sen life imprisonment, in a jail outside of Kolkata (I recommend the Andaman jail) – swift and immediate action will act as a deterrent for other ponzi schemers who are probably just waiting to play their game.

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