Crowdfunding, social media investment schemes under Sebi lens

Oct 27 2013, 16:03 IST
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SummarySebi has enhanced surveillance to check fraudulent investment schemes being run through them.

takes place on some dedicated sites for such activities.

US markets regulator SEC last night proposed new rules to permit companies to offer and sell securities through crowdfunding, while the UK's Financial Conduct Authority (FCA) also outlined today how it plans to regulate it.

In India, the few cases of crowdfunding involve raising of funds for films, technology start-ups, e-commerce ventures and some other businesses that are very small in size.

However, as the trend catches on, it is expected that large-scale funds can be raised through such platforms and that would further increase the risk of possible fraudulent activities, the official said, while stressing on the need for a clear regulatory framework in this regard.

Crowdfunding has been mostly used so far to generate financial support for artistic ventures like films and music recordings, where typically small individual contributions are pooled in a large number of people.

However, it has not been used so far to offer and sell securities, as any offering of share in financial returns or profits from business activities could trigger the application of the prevalent securities laws.

It is also suspected that some of the barred entities may have taken to the Internet to promote their fraudulent schemes and could be operating through closed member groups on websites, blogs and social networking media platforms.

Sebi has received numerous complaints about such schemes and has begun looking into the matter through its own technical systems to track the Internet and social media platforms, as also through use of its newly granted powers.

SMSes and emails are also being used in a big way to promote such fraudulent schemes and products, but many of these messages and mails have found their way to the regulatory and enforcement agencies.

While the unauthorised investment schemes, having a size of Rs 100 crore or more, can be probed under Sebi's Collective Investment Scheme regulations, the entities promising unrealistic returns and offering "sure-shot" investment tips can face action under the Prevention of Fraudulent and Unfair Trade Practices Regulations.

After its initial investigations, Sebi may also seek information from the concerned websites, social media platforms and mobile service providers, as it has been now allowed to seek information from any entity in relation to its probes.

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