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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.

  • Harsha says:

    Good write up. Last para was very optimistic 🙂 If such people are punished strictly that too in a quick time, it would act as deterrent. But such criminals are politically connected and enjoy immunity. Even if they are put behind bars, they enjoy 5 star facilities there (like that one Global Trust Bank big wig, who even had his wife being allowed into his cell often!)

  • Kaushik says:

    I guess the group name “Saradha” has few alphabets common with “SAHARA”…..wait a second…..Heyyy Deepak all letters are there!!! Did “Saradha” copied big brother’s business plan ?

  • deepak says:

    Deepak
    Every newspaper worth its name had been highlighting this issue in Bengal for a year now…. none of our so called regulators took any action. Its a fraud perpetrated by the political bosses and our so called respectful beaurucrats warming the regulatory seats waiting for cushy pension and post retirement job bother about scams which mainly affect the masses. People can get away with laughable explanations of 20000 cr being paid in cash….. things are broken beyond repair….. its brazen. In your face fraud….

  • Lincoln says:

    I agree. Only solution for such fraud is quick and harsh judgement to the main culprit as well as to the political supporters.
    No other systemic change like paperwork or changing legal system will solve unless these people are put behind bars.

  • Manish says:

    The current KYC mechanism is just a waste of time and doesn’t really stop anything. At least by streamlining it, it will save time and money for everyone involved.
    However, that will not solve the ponzi scheme issue. That’s just human nature and all the regulations in the world cannot stop people’s greed and ignorance.

  • Government should punish him….

  • Ramamurthy says:

    Andamans mean only Jail to many persons.The Jail no longer exists.The Jail has been replaced by a modern hospital .Andamans is a beautiful tourist attraction.Dont spoil its beauty by associating it with a Jail which no longer exists.

  • SPD says:

    Ramamurthy,
    Dont feel offended, Andaman is integral part of india and is very very beautiful. Lots of my friend have been to Andaman for tourism and they like it very much. Deepak tried to use slang to make his point. Thats it.

  • Krish says:

    There are several levels of investors seems joining such scheme. Much of the initial investors seem drivers (auto, taxi, trucks and buses), sweepers, cleaners, security guards, maids and labours and peons and we can understand that they are naive and trapped into such bogus quick rich schemes.
    Then I am surprised to see next layer of investors in teachers, clerks, retired staff, agents/brokers and even doctors. I had interacted with this group of investors earlier in one of the scams in south India and shocked to hear the logic. Much of the informal non collateral loans in district headquarters and small towns runs with a minimum interest of 36%. One teacher challenged me infact that there are so many local finance companies still operating today who lends upwards of 36%. Of course these small finance companies would not collect deposits from public but operate with owners capital.
    Given the above circumstances, 36% is perceived as bare minimum even by educated and well informed employees in private lending space. Hence when offered by any entity of such returns, for most of these people it does not look illogical and hence part with their money as themselves borrowed earlier on such interest rates at one point of time.
    I don’t think RBI, Stage Govts, SEBI or any one could introduce an effective legislation to prevent spread of such financial frauds.

  • rajivahuja says:

    I think greed bought the investors to their knees. Due diligence on part of us common folks is very much necessary. We should not blindly trust the RM’s,brokers etc. After all their interests might supersede our interests. I had a doubt on ULIP’s which you were gracious enough to reply to my query.

  • Ramamurthy says:

    There are some political parties which describe this as a scam.
    Do you agree?I dont think so unless the funds collected were syphoned into the pockets of any politician or party.I think it is only GREED GREED for Himalayan 36% interest which has caused this.I am sorry to say this but the investors are solely responsible for the situation they are facing to day.