page_title: Saradha Group financial scandal
section_title: Financial operations
hierarchical_section_title: Saradha Group financial scandal / Modus operandi of Saradha / Financial operations
caption_attribution_description: English: this is the money collection graph for saradha group of comp from 2008 to 2014, the primary source is SIT report to supreme court of india, it has been published in Anandabazar Patrika on 29 April 2014
context_page_description: The Saradha Group financial scandal was a major financial scam and alleged political scandal caused by the collapse of a Ponzi scheme run by Saradha Group, a consortium of over 200 private companies that was believed to be running collective investment schemes popularly but incorrectly referred to as chit funds in Eastern India.
  The group collected around ₹20 to 30 billion from over 1.7 million depositors before it collapsed in April 2013. In the aftermath of the scandal, the State Government of West Bengal where the Saradha Group and most of its investors were based instituted an inquiry commission to investigate the collapse. The State government also set up a fund of ₹5 billion to ensure that low-income investors were not bankrupted.
  The central government through the Income Tax Department and Enforcement Directorate launched a multi-agency probe to investigate the Saradha scam and similar Ponzi schemes.
context_section_description: The companies that were comprised by Saradha Group were incorporated in 2006. Its name is a cacography of Sarada Devi, the wife and spiritual counterpart of Ramakrishna Paramahamsa—a nineteenth-century mystic of Bengal. This duplicitous association gave Saradha Group a veneer of respectability. Like all Ponzi schemes, Saradha Group promised astronomical returns in fanciful but credible investments. Its funds were sold on commission by agents recruited from local rural communities. Between 25 and 40% of the deposit was returned to these agents as commissions and lucrative gifts to quickly build up a wide agent pyramid. The group used a nexus of companies to launder money and evade regulators.
  Initially, the frontline companies collected money from the public by issuing secured debentures and redeemable preferential bonds. Under Indian Securities regulations and section 67 of the Indian Companies Act (1956), a company cannot raise capital from more than 50 people without issuing a proper prospectus and balance sheet. Its accounts must be audited and it must also have explicit permission to operate from the market regulator Securities and Exchange Board of India (SEBI).
  SEBI first confronted Saradha Group in 2009. Saradha Group adapted by opening up to 200 new companies to create more cross-holdings. This created an extremely complex tiered corporate structure to confound SEBI by hampering their ability to consolidate blame. SEBI persisted in its investigation through 2010. Saradha Group reacted by changing its methods of raising capital. In West Bengal, Jharkhand, Assam and Chhattisgarh, it began operating variations of collective investment schemes (CIS) involving tourism packages, forward travel and hotel booking timeshare credit transfer, real estate, infrastructure finance, and motorcycle manufacturing. Investors were rarely informed about the true nature of their investments. Instead, many were told they would get high returns after a fixed period. With other investors, the investment was fraudulently sold in the form of a chit fund. Under the Chit Fund Act (1982), chit funds are regulated by state governments rather than SEBI.
  SEBI warned the state government of West Bengal about Saradha Group's chit fund activities in 2011, again prompting Saradha Group to change its methods. This time, it acquired and sold large numbers of shares of various listed companies then embezzled the proceeds of the sale through accounts which as of September 2014 have not been identified. Meanwhile, Saradha Group started laundering a large portion of its funds to Dubai, South Africa and Singapore. By 2012, SEBI was able to classify the group's activities as collective investment schemes rather than chit funds—and demanded that it immediately stop operating its investment schemes until it received  permission to operate from SEBI. Saradha Group did not comply with this ruling and continued to operate until its collapse in April 2013.
caption: Money collected by Saradha Group of companies per year in billion INR. 95% of the fund was collected in the last three years of the scam. Source: 2014 SIT Report
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