Sebi proposes joint task force for illicit money pooling

To check the menace of illicit money-pooling activities of small unlisted companies, Sebi has proposed a joint task force of financial regulators and intelligence agencies to bring them under regulatory ambit. Under the existing regulations, any fund-raising worth Rs 100 crore or more from the public through any unregistered scheme is deemed to be a Collective Investment Scheme (CIS) and it comes under Sebi's jurisdiction. Besides, any fund raising exercise involving 50 or more investors is considered as a public offering and therefore it is also regulated by Sebi.

However, there are many cases where companies claim to have raised funds from less than 50 investors and peg their total mop-up at below Rs 100 crore to avoid any regulatory glare. Often such companies have been found to be raising money from public by misusing routes like non-convertible debentures and some other financial instruments. Official sources said a number of such unscrupulous companies have actually collected public deposits of more than Rs 100 crore, or from 50 or more investors, but disguise them as 'small financial companies' to remain outside Sebi's ambit.

The markets regulator has been getting litany of complaints with respect to the small deposit mobilisation companies which are routing funds from the public through non-convertible debentures (NCDs) or preference shares in the guise of private placement, they said. As many as 500 cases have already come under the scanner of Sebi and revenue intelligence agencies for raising a whopping Rs 2 lakh crore illegally in the guise of NCDs and private placements, they said. These companies have been taking benefits of the regulatory gap to avoid their monitoring and putting at risk people's money, the sources said.

Most of these companies do not provide correct and complete information to the Registrar of Companies (ROC) and Sebi. It is only after investigations, that the regulators have found about the funds were raised from more than 49 members and therefore they were actually public issues and not private placements. The NCDs are financial instruments that cannot be converted into shares, while private placement of shares can not involve public shareholders and needs to be limited to a maximum of 49 investors.

NCDs and Private Placement Programmes (PPPs) have emerged as key modes for disguising black money as genuine funds, they said. In a meeting of the officials from the country's top economic intelligence agencies and financial regulators, Sebi expressed its concern that "small financial companies are mushrooming but are not being monitored". It has also been proposed to put in place an early warning system to enable timely intimation of such cases by ROC to Sebi, sources said.