Saradha Scam: The SFIO probe that fell short due to Mamata govt’s non-cooperation

New Delhi, Feb 05: There have been multiple agencies that have probed the multi crore Saradha Scam which has now taken centre stage. The Supreme Court had to intervene today and direct the Police Commissioner of West Bengal to appear before the CBI at a neutral venue in Shillong.

The CBI complained to the Supreme Court that its officers were detained and the Kolkata Police refused to allow them to probe the commissioner, Rajeev Kumar. This is not the first time that the CBI has complained about interference from the state. In 2014, its office at Salt Lake was surrounded by TMC workers, after the agency arrested senior leader Madan Mitra.

Prior to the CBI, the Serious Frauds Investigation Office had submitted a report regarding the scam. The SFIO too in its report had stated that it could get access to the original books of accounts and other original documents of the Saradha Group as they were in the possession of the West Bengal police. The SFIO noted that it had made several requests, but only select information was made available.

The SFIO in its report suggested that the Saradha Group had floated at least 279 companies to channelise money from gullible investors. Most of these companies were non-operational and it was found that were acting as a front.

The SFIO also found that four companies collected 96 per cent of the money from small investors who deposited less than Rs 50,000 each. The money was mobilised through a large network of nearly 3 lakh agents, the SFIO said in a report running into 500 pages.

The scam, wherein lakhs of investors in West Bengal and neighbouring states were lured into illegal money pooling activities, came to light early last year amid allegations that a section of Trinamool Congress leaders were involved.

Initially, it came out to be known as 'Saradha chit fund scam' although none of Saradha group entities were registered as 'chit funds'. However, it has become the first major case in India to officially get a 'ponzi' tag after submission of final probe report of the Serious Fraud Investigation Office (SFIO) to the government.

Like a typical ponzi scheme, Saradha was found to be paying returns to older investors from money collected from newer subscribers to its 'bonds and policies'.

Such activities came to be known as ponzi schemes after Charles Ponzi, who became notorious in the US in the 1920s for deploying this technique while promising 50 per cent return on investments in 45 days and 100 per cent within 90 days.

In its over 500-page probe report, SFIO also concluded that Kolkata-based Saradha group was into money market operations but camouflaged it as real estate activities.

"The intention to defraud is evident from the fact that funds mobilised were not productively utilised for generating surplus. Rather, funds were swindled away in acquiring loss making media companies for extraneous reasons and misappropriating the funds," SFIO said.

The probe agency has recommended action against Saradha group and its directors on accounts of more than 20 violations including falsification of accounts.

Observing that the West Bengal Police only made available "limited information", SFIO said that "detailed investigation could be made only in respect of the four fund raising companies Saradha Printing & Publication Pvt Ltd, Bengal Media Pvt Ltd and Global Automobiles Pvt Ltd".

According to SFIO, Saradha Group chief Sudipta Sen, was a director in 160 companies and his son Subhojit Sen in 64 companies.

SFIO, however, could not definitely establish the money trail for utilisation of funds, as most transactions took place in cash. The funds routed through banking channels were mostly used for acquisition of 'assets and other investments'.

The case took an interesting turn recently after suspended Trinamool Congress MP and another Saradha scam accused Kunal Ghosh allegedly tried to commit suicide in jail.

SFIO has recommended a CBI probe against top executives of Saradha group, a West Bengal minister and top police officers, among others, as also into payments made to football clubs and various well-known individuals, among others.

The SFIO said none of the Saradha group companies is registered as chit funds under the Chit Fund Act, 1982. The companies cheated the public at large by inducing them to deposit their money in "various unsustainable and camouflaged" schemes.

Noting that the Saradha group of companies were having meagre income from their declared business activities, SFIO said these entities were not in a position to repay money garnered from the public.

The funds were purportedly collected for real estate and, tour and travel businesses but investors were not provided land or tour and travel packages while refund was made to some investors from fresh deposits of new investors.

Four fund-collecting companies in the Saradha Group had a tree-like structure of marketing associates in 19 levels where the person mobilising the deposit got direct commission.

"The directors of the company knew from the very beginning that it would not be possible for the company to return the deposits on maturity as promised, because it had not viable business to generate such high returns," SFIO said.

Among others, the probe agency found serious financial mismanagement and siphoning off funds by promoters.

The West Bengal police provided only limited information related to the case, due to which the agency had to depend on third party sources including Enforcement Directorate, Income Tax Department, Sebi and employees of the group.

"... the investigation team could not lay hands on the original books of the accounts or other original documents of the Saradha Group as the same were in the custody of the West Bengal Police and repeated requests did not yield any result.

"Only limited information was made available by the police authorities," SFIO said, while adding that "despite the best efforts, the requisite level of cooperation could not be obtained from the state police".

Due to non-availability of documents, employees and directors, SFIO could conduct detailed probe only in respect of four fund-raising companies of the group -- namely Saradha Realty India Ltd, Saradha Tours & Travels Pvt Ltd, Saradha Garden Resorts & Hotel Pvt Ltd and Saradha Housing Pvt Ltd.