The Saradha Group financial scam was a major financial scam and alleged political upheaval caused by the collapse of a Ponzi scheme run by the 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.
Since the news of the scam of the Saradha Group was exposed, over 200 agents of these money laundering schemes died by suicide. The full extent of those who succumbed to stress-related issues remains unknown. According to reports, more than 3.5 million individuals became agents for 155 deposit-collecting companies as the chit-fund business rapidly expanded in 2011-12.
Sudipto Sen (Chairman of Saradha Group)
The Saradha Group scam had its base in West Bengal and was executed by the mastermind Mr. Sudipto Sen, the Chairman of the Saradha Group of Companies. The Saradha Group was kept in the name of Sarada Devi, the wife of spiritual Ramakrishna Paramahamsa, of West Bengal. Mr Sudipto Sen was the chairman and managing director of the Saradha Group, often described as a soft-spoken and charming personality.
Sudipto Sen also associated himself with various land development projects in West Bengal, which also proved to be a good customer of his investment scheme. Though very little is known about his past life, he is said to be the son of Nriprndra Narayan Sen and Ranupto Kana Sen and was born on March 30, 1959, as mentioned in his passport. But there were rumours that Sudipto was the son of Bhudeb Sen.
Bhudeb Sen, another name in the history of West Bengal, who was famous for his chit fund company called Sanchayita in the 1980s, fled with crores about 10 years ago.
Inside the Scam
In the early 2000s, businessman Sudipto Sen set up the Saradha Group and launched what the securities market regulator Securities and Exchange Board of India (SEBI) later categorised as a collective investment scheme. The Saradha Group used a consortium of companies to tap small investors, promising them very high returns. In a classic Ponzi scheme, money was collected through a wide network of agents, incentivised by commissions ranging from 25% to 40%.
In a few years, Saradha’s raised about Rs.2,500 crore. It built its brand through Filmstar endorsements, investments in popular media outlets, and the Sponsorship of culture to Odisha, Assam, and Tripura, and the number of investors reached close to 17 lakh.
By 2009, politicians in West Bengal had begun to discuss Saradha’s alleged fraudulent ways. In 2012, SEBI, which was already watching the Group, forced it to stop accepting money from investors until it got the regulator’s permission, Alarm bells started to ring in January 2013, when for the first time, the Group’s cash inflow was lower than its outflow – another classic event in a Ponzi Scheme.
By April 2013, the scheme had collapsed, and investors and agents lodged hundreds of complaints with the Bidhanagar Police. Sudipto Sen fled West Bengal after writing an 18-page letter, in which he accused several politicians of arm-twisting him into making poor investments that led the company to collapse. An FIR was registered, and Sen was arrested along with his associate, Debjani Mukharje, in Sonmarg on April 20, 2013.
Master Plan to Raise the Funds
The Saradha Group of companies was incorporated in 2006, and the name Saradha Group was kept in the name of Sarada Devi, the wife of spiritual Ramakrishna Paramahamsa, of West Bengal. They were very much followed religiously and spiritually by the West Bengal people. Sudipto Sen used her name for his company to gain confidence and also develop the faith of the investors in his schemes.
The Saradha Group promised investors huge returns on their investment. He used to do this by issuing Bonds and Debentures. He recruited numerous agents who used to sell his Bonds and Debentures. These agents were paid commissions for selling their schemes, and they belonged to local rural communities.
The Saradha Group used various tricks and methods to raise funds. Several Collective Investment Schemes (CIS), including tourism packages, forward travel and hotel booking, timeshare credit transfer, real estate, infrastructure finance, and motorcycle manufacturing, were used as traps by his group. Many of the investments were also sold in the form of chit funds, as chit funds are regulated by the government and not the SEBI.
In this way, he was able to raise about 2500 crores in a few years. The Group continued to raise capital from ordinary people and the bulk of its investors put in around Rs. 50,000 each. Further, the Saradha Group scheme was expanded to Odisha, Assam, and Tripura, and the number of investors reached close to 17 lakhs.
The Political ConnectionsÂ
Through SEBI kept an eye on the activities of the Saradha Group of raising funds, it was very much obvious that this kind of big fund-raising activities could not been possible without a deep political connection. It was believed that Sudipto Sen had close connections with the TMC leaders and other high officials of the West Bengal government.
Various Ministers were involved with the Saradha Group’s activities, such as MP Srinjoy Bose was involved in the media operations, and the Transport Minister, Madan Mitr, who headed the employees’ union of the group. According to reports, Sudipto Sen spent almost Rs. 18.6 million to buy paintings by Mamta Banerjee. The Saradha Group gifted patrol motorcycles to the Kolkata Police, and the government deployed and distributed ambulances and motorcycles sponsored by the Saradha Group in Naxalite areas of the state.
Investigation of The Scam
Following the 2013 financial collapse, the Supreme Court ordered the CBI to take over investigations into the involved companies. The scam involved various companies, including Valley Group and promised extravagant returns to investors. These companies functioned through a network of numerous subsidiaries and thousands of agents in a pyramid structure, incentivised by commissions ranging from 25% to 40%.
Investigations found the company had laundered investments in locations such as Dubai, South Africa and Singapore. Mamta Banerjee’s government set up a Special Investigation Team (SIT) to probe the case after clubbing all the FIRS. Around the same time, the CBI began investigations in Assam after the state government handed over the probe to it. Based on the state police, the government handed over the probe to it. Based on state police FIRS, the Enforcement Directorate registered cases of alleged money laundering and arrested several people.
The CBI questioned over a dozen TMC MLAS, MPS, and MPS, and arrested Srinjoy Bose, Madan Mitra and Kunal Ghosh. Among those questioned were then TMC vice president and former West Bengal DGP Rajat Majumdar, Trinamool Youth Congress chief Shankudeb Panda, and MPS Satbdo Roy and Tapas Paul. Former Assam DGP Shankar Barua committed suicide after the CBI questioned him and searched his house.
Despite investigations, including those by the CBI and the Enforcement Directorate (ED), the total amount lost by investors is still unknown but has been estimated to be over Rs.30,00 crore for the Saradha and Rose Valley scams alone.
Scam Exposed
The Saradha scam of West Bengal came to light in April 2013 and is estimated at over Rs.10,000 crore. Besides CBI, the Enforcement Director (ED0) has also filed a case based on the agency’s first information report (FIR).
SEBI has been persistently chasing the Saradha Group for its activities since 2010. Since the actions forced Sudipto Sen to change his methods to raise funds, SEBI warned the West Bengal Government about the Saradha Group chit fund Activities in the year 2011. The RBI also asked the West Bengal government on December 7, 2012, to initiate action against the companies that were indulging in financial malpractice.
Saradha Group’s fortune started to shatter towards the end of 2012 when complaints started piling up for payment defaults. In the year 2013, Sudipto Sen ran out of cash and ideas to cheat people, and he started facing the downfall and collapse of his organisation. On April 6, 2013, he wrote a letter and mentioned all the details about the scam, and the amount of the scam was worth over Rs 10,000 crore. On April 22, 2013, Mamta Banerjee announced a member judiciary inquiry commission to probe into the scam and also set up a relief fund for the investors.
Also Read This:Â Scam Exposed! How Ketan Parekh Managed to Commit the Rs 40000 Crore Scam?
The highlight of the Scam
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Conclusion
This Saradha Group in West Bengal was accused of cheating more than a million investors by running Ponsi Schemes and thus executed a scam worth more than 10,000 crores, which was also marked as one of the most ranked corruption cases in India. Now let us understand the details of the scam and its execution.
With this incident, investors should learn to protect themselves from fraud and protect the integrity of the Indian Financial system. The high-yielding investing options sometimes seem attractive and a game changer for the common man, but the common man should wisely identify the potential threat that could be associated with these luring schemes, and hence make decisions wisely about investing money.
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