Saradha Chit Fund Scam: The ₹2,500 Crore Ponzi Scheme

Consider this: You’re walking down the street when you come across someone who says, “We have this scheme where you spend with us and your money doubles in three years.” Will you be tempted to invest in a scheme like this? Will you put your hard-earned money into a scheme like this?
In this article, we will look at one such scheme that exploded in the face of Bengal in 2013,the Saradha Scam, which duped lakhs of rural investors out of ₹20 to ₹30 billion (USD 4-6 billion) before collapsing. Let’s get started right away.

Sudipto Sen and Kunal Ghosh Main accused of Sharda Chit Fund Scam Bengal

Saradha Scam: The Origins

How does one persuade people to believe in a Ponzi scheme? You play on their emotions and beliefs, and he did just that! Sudipto Sen named his scheme Saradha after Sarada Devi, the nineteenth-century mystic Ramakrishna Paramahamsa’s wife and spiritual counterpart. Saradha Group gained instant respect from the rural people as a result of this deceptive name association. The stage had been set.

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Sen hired a large number of agents from various rural areas and assigned them the task of selling funds. They were rewarded with a commission of 25-40% on deposits, as well as other lucrative gifts. He was able to build a massive agent pyramid with the commissions and gifts he received. The Saradha group quickly expanded outside of Bengal, into the states of Odisha, Assam, Tripura, Jharkhand, and Chhattisgarh, thanks to an instantly recognisable name, the promise of astronomical returns, and an army of super-motivated agents.

How did it function?

Saradha Group, like any other Ponzi scheme, accepted money from new investors and used it to pay off older investors. The inflow of funds from new investors is the crux of such a scheme. When that happens, the scheme starts to fall apart.

Saradha Group: The Heyday

Sudipto Sen used the funds raised to improve the brand’s image. Celebrity endorsements from prominent faces such as Trinamool Congress (TMC) leader and Member of Parliament (MP) Satabdi Roy and TMC-MP Mithun Chakraborty as brand ambassadors were used to make investments in high-visibility sectors such as the Bengal Film Industry. It heavily invested in local television channels, FM radio channels, and newspapers (eight), investing approximately Rs. 9.88 billion (USD 140 million) under the CEO of the media group, Kunal Ghosh, another TMC-MP.

The Saradha Group purchased several shell companies, including Global Automobiles, West Bengal Awadhoot Agro Private Ltd., and Landmark Cement, in order to present a phoney diversified business to prospective investors. According to reports, after being acquired by Saradha, the heavily indebted Global Automobiles shut down production but kept 150 workers on the payroll who would pretend to work when ‘truckloads’ of prospective investors came to see first-hand before investing.

The Saradha group donated motorcycles to the Kolkata police and offered ambulances to Naxalite areas as part of its CSR activities. It has made investments in various football clubs as well as sponsored Durga Puja pandals.

Saradha Scam: The Fall

Saradha Chit Fund Scam

The Saradha group, which began as a chit fund, began issuing debentures and redeemable preferential bonds to the public in 2009. This was a direct violation of SEBI regulations, which required companies raising capital from more than 50 people to issue a prospectus and a balance sheet. When SEBI intervened, the Saradha group formed up to 239 companies in order to thwart SEBI’s ability to consolidate blame.

Because of SEBI’s persistent interventions, the Saradha Group changed its capital-raising strategy in 2010. It began operating a number of collective investment schemes (CIS) involving tourism packages, real estate, infrastructure finance, and motorcycle production. Investors were kept in the dark about the true nature of their investments because they were only promised high returns.

Saradha changed its tactics once more in 2011 after SEBI warned the West Bengal state government about its chit fund activities. It bought and sold shares in a number of publicly traded companies, then embezzled the proceeds through a series of unidentified accounts. Saradha sent large sums of money to Dubai, South Africa, and Singapore. In 2012, SEBI ordered Saradha to halt all investment operations until it received permission to operate from SEBI. The group ignored this demand and continued to operate until its demise in 2013.

Saradha Group’s Collapse

When the cash inflows become significantly less than the cash outflows, a Ponzi scheme is said to have run its course. Saradha witnessed this for the first time in January 2013. Sudipto Sen attempted to reassure depositors and agents but was unable to raise any additional funds. Sudipto Sen admitted to paying large sums of money to many politicians in an 18-page confessional letter to the CBI on April 6, 2013. Kunal Ghosh was accused of blackmailing him into investing in loss-making businesses.

On April 10, he absconded after posting the letter. When the scheme unravelled while he was away, 600 agents posing as Saradha employees gathered at TMC headquarters, demanding government intervention. Sen was served with an arrest warrant on April 18. Sudipto Sen and two of his associates, Debjani Mukherjee and Arvind Kumar Chauhan, were apprehended in Kashmir on April 23, 2013, after evading capture for a week.

Saradha Scam’s Aftermath

Mamta Banerjee announced a four-member judicial inquiry commission and a USD 70 million relief fund for low-income depositors in the aftermath of the Saradha scam’s demise. To expedite the process, a special investigation team (SIT) was formed. It was looked into for a year. The Supreme Court directed that the investigation be carried out by federal investigation agencies. West Bengal initially opposed the decision, but after other states, including Assam and Tripura, did the same, the case was transferred to the CBI.

The Twist

The CBI investigation quickly revealed that many TMC politicians were involved in the scam. MP Kunal Ghosh, MP Srinjoy Bose, and Transport Minister Madan Mitra were all salaried Saradha employees who publicly encouraged people to invest. Sudipto Sen claimed to have spent USD 26,000 on Mamta Banerjee’s paintings, bringing her into the picture. A charge sheet was filed against Nalini Chidambaram, wife of former finance minister P. Chidambaram, for allegedly accepting a bribe of Rs. 1.4 crore.

An additional investigation revealed irregularities in the SIT’s investigation. The CBI claims that the SIT did not transfer all evidence, some of which would have been critical in the investigation. The CBI made 18 unsuccessful attempts to question the SIT team. Following the Supreme Court’s intervention, SIT head Rajeev Kumar appeared for questioning; in the meantime, Mamta Banerjee staged a three-day save democracy’ protest in Bengal.

The fate of the guilty

Sudipto Sen has been imprisoned for about 7 years and has over 98 cases pending against him. He is attempting to stand trial as soon as possible, despite the fact that he has already served the maximum prison sentence in such cases.

What about all the money?

The CBI has not been able to trace the Saradha group’s money and believes it has been lost, despite the fact that it was invested abroad.

Closing Remarks

Saradha Chit Fund Scheme

Was there a cover-up on the part of the government? Will the funds ever be recovered? Is there any way to avoid such scams in the future?
These are the kinds of questions that educated people can ponder from the comfort of their own homes. The ultimate losers in all of this are the rural residents who invested in this scheme in good faith.
In the end, it all comes down to how cautious the investors are and how prudently they spend their hard-earned money.

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Bhavya Dayal
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