Developer Fined Record $1.1 Billion in India Ponzi Crusade

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  • Penalty to be paid within 45 days, market regulator says
  • Sebi order against 'illegal' fundraising by developer

India’s markets regulator imposed a record penalty of 72.7 billion rupees ($1.1 billion) on real-estate developer PACL Ltd. for raising funds from the public without its approval.

The Securities and Exchange Board of India directed New Delhi-based PACL to pay the fine within 45 days of receiving the order. Meeta Sharma, the company’s law officer, didn’t immediately respond to an e-mail seeking comments. Four calls on Wednesday to the company’s phone line in New Delhi and a fax seeking comments went unanswered.

Sebi, which is cracking down on Ponzi-like collective investment schemes in India, had told PACL in August last year to return 491 billion rupees to investors along with “due returns,” citing rule violations. The company subsequently lost an appeal to the Securities Appellate Tribunal, which upheld the Sebi order last month.

“This should serve as a deterrent for others,” said Jitendra Nath Gupta, founder of Mumbai-based proxy advisory firm, Stakeholders Empowerment Services, on phone. “It’s important for the message to go through that law will catch up.”

PACL, according to its website, develops barren land into cultivable ones, grows vegetables and fruits, operates a tourism portal, a news channel as well as hotels in Goa and Himachal Pradesh. It names no board members, senior executives or spokespersons. The customer support link currently navigates to a blank page that just says "It works!"

‘Lost Hope’

“I have lost the hope that I will ever get my money,” said Vijay Yadav, a farmer from the western state of Rajasthan, said Wednesday in front of PACL’s offices in New Delhi, where he’d come to try to get back 90,000 rupees he put with the company several years ago. “It’s a looting of rural poor. We are ruined.” 

In a 42-page order issued Tuesday, Amit Pradhan, Sebi’s adjudicating officer wrote the company “illegally mobilized funds” through “collective investment schemes” without registering with Sebi.

“The hard-earned money of the common man has been duped,” he wrote. “There cannot be a better case which deserves imposition of maximum penalty. It will give a strong message to the securities market at large that such types of violations will not be viewed lightly.”

In a similar case, the Subrata Roy-controlled Sahara Group was asked to repay 240 billion rupees to its depositors for the same violations. The financier had failed to convince the regulator, the SAT and finally India’s top court about the validity of its money collection methods. Roy was sent to prison last year after being charged with contempt of court for failing to comply with an order to refund investors.