tag:blogger.com,1999:blog-19649274.post1382441444247094830..comments2024-03-27T17:16:12.789+05:30Comments on The Leap Blog: Investigating ponzi schemes: A maladyAjay Shahhttp://www.blogger.com/profile/03835842741008200034noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-19649274.post-20782267955586462042013-06-10T17:02:02.694+05:302013-06-10T17:02:02.694+05:30The style of operation Shardha was using is not ne...The style of operation Shardha was using is not new. There is a problem<br />of defining investments as a function of what the `company proposes'<br />`to do with it, rather than what the person who makes the investment<br />`perceives' it to be. The problem in present laws is that they are<br />all written from the perspective of the company. For example, nidhi<br />companies taking deposits, companies issuing fixed deposits, NBFC<br />companies taking investments. <br /><br />On the other hand the the IFC takes the approach of stating that all<br />investment activity is regulated. This is based on the `economic'<br />perspective of the consumer. If the consumer sees it as an investment,<br />then colouring that investment as a land deal will not change the<br />underlying economic perception. This type of frauds are easily caught<br />in jurisdictions where there is a clear investments regulator. If you<br />are interested to read about the history of such cases you could look<br />at the [Howey Case][http://goo.gl/rKTJd] where this trick was tried in<br />1946. The U.S. Supreme Court clearly held that selling land could not<br />be a cover for what was essentially selling a security. In the IFC,<br />UFA will be the residual financial sector regulator. If the activity<br />is an financial service/product and it is not banking or payments,<br />then it is under the am-bit of UFA. The UFA will be have the power to<br />raid the offices of Shardha and get the offer documents. It will<br />clearly show a 18-20% return that was being promised if the land was<br />not taken. <br /><br />The UFA will use this in the specialised criminal court to show that<br />this is a colourable exercise which has the objective of avoiding the<br />law. This will also be supported by the general legal principle 'What<br />the law forbids to be done directly cannot be made lawful by doing it<br />indirectly.'<br /><br />This type of schemes trying to avoid jurisdictions are more than 50<br />years old. Most countries have developed jurisprudence and legal<br />systems to counter them. The same will happen under a principles based<br />IFC which prohibits `investments'<br />Shubho Royhttps://www.blogger.com/profile/04193498880891547450noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-73469938713976587972013-06-10T17:01:02.677+05:302013-06-10T17:01:02.677+05:30Dear Pratik,
The High Courts should not be issui...Dear Pratik, <br /><br />The High Courts should not be issuing stay orders unless a clear case<br />is established by the regulator. The general principle in law is that<br />a judicial precedent is not overturned. I would like to point out that<br />the lower court had issued an order, a High Court (rightly) will not<br />overturn it in the first hearing. <br /><br />Your point about training judges in general is valid. But that is a<br />consideration for the wider agenda of judicial reforms. We have to<br />weigh the costs and benefits of the judicial system of expert<br />judges. The Shardha type of cases are once in a decade type of<br />problem. We in India just don't have the resources to train the judges<br />in financial law. If we had the resources it could be better used to<br />train judges in the more common legal problems like contract<br />enforcement.<br />You are right that special courts are expensive, but the question is<br />one of relative costs. Training all lower and High Court judges is<br />more expensive than special courts. <br />Shubho Royhttps://www.blogger.com/profile/04193498880891547450noreply@blogger.comtag:blogger.com,1999:blog-19649274.post-14797952101095504142013-05-02T08:39:16.689+05:302013-05-02T08:39:16.689+05:30Please note that for about last two years Saradha ...Please note that for about last two years Saradha was following a method that may not have been stoppable easily under IFC also. They were taking deposits in their real estate firms and showing them as advance booking amount for flats and plots with full co-operation of depositors. The agreement had a clause that in case buyer did not want to buy said property for any reason, he was entitled to a full refund with 24% p.a. interest. On paper, this is not a financial dealing, not a deposit. It is just a standard real estate purchase with a good and fair refund clause.<br /><br />Also, there are similar schemes in other sectors also. In Sangrur distt, there is a engg college which is run by relative of MLA, which is saying pay fee of your child five years in advance. In case child does not want to study, then get full refund with 18% or 20% interest. There are commission agents who are canvassing for money and telling people quietly that this is actually a deposit scheme. There is full approval of director education and her department for scheme. It is actually a Ponzi scheme but no SEBI or anyone will come to know of it till people start losing their savings. There may be more in other parts of the country.<br /><br />India has made great progress in Ponzi schemes. This is our country’s contribution to the world of finance. Any good or service can be turn into Ponzi just by having advance payment and refund clause. What will the IFC do?<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-19649274.post-19274106615899197622013-04-30T13:12:17.267+05:302013-04-30T13:12:17.267+05:30Although I agree that with the conclusion that spe...Although I agree that with the conclusion that special courts for investments are necessary, I find it difficult to agree with the following arguments:<br /><br />1. You say: "However, High Court orders take time, and in this time period the operator of the ponzi scheme can continue to collect money or misappropriate the money already deposited." The High Court may not quickly dispose off the entire case for good but it can at the very inception pass a stay order preventing the CIS from collecting any further money. So delay in deciding the appeal by a High Court is not a major issue here.<br />2. You say: "It will be extremely expensive and wasteful to train all district judges in securities laws for the once-in-a-decade case in financial laws." Expense cannot be avoided. Setting up Special Courts is also very expensive. Training the judges and personnels for such courts is expensive too. <br /><br />Better judges, lawyers as well as Court infrastructure are necessary. The existing subordinate judiciary lacks these attributes. Thats why we need special courts for investments. Pratiknoreply@blogger.com