Bloomberg has an awesome piece on the Saradha scam:
Sudipta Sen was on the run when police arrested him on April 23 at Hotel Snow Land, a resort with views of the Himalayas in Sonamarg, India, about 2,700 kilometers northwest of his Kolkata base.
Sen’s Saradha Realty India Ltd., the anchor of an empire that took in small deposits and promised payouts of land, apartments or a refund of clients’ money with interest rates as high as 24 percent, was defaulting on thousands of deals. Employees of Sen’s media companies hadn’t gotten paychecks in months. As cash dried up, 1.74 million customers saw savings vanish.
Sen is in jail now, but the drama surrounding Saradha has already seen many agents and investors commit suicide, and left many thousands wondering if their money will ever be returned.
The scam was discovered in April, when a Saradha Chit Fund went bust. Sen is politically connected to the Trinamool Congress, the ruling party in West Bengal, but obviously there was too much outrage to just let him go. Things are slowly beginning to unravel as a committee empowered to fix things has gotten a few things together:
Earlier, the Shyamal Sen Commission, armed with a Calcutta HC July 19 order and also according to the terms of reference which led to its formation,obtained a list of seized Saradha properties from the Special Investigation Team. According to sources, this related to 208 land parcels, 64 cars and around Rs 37 crore in cash. The commission has already firmed up its intent to auction 44 of these cars (the rest 20 are mortgaged with banks) and around seven land parcels, which prima facie are free of litigation or claims. These proceeds, according to the commission, would be paid back to the depositors. The commission has already provided relief to 1.04 lakh Saradha depositors, but this is only from the interim grants provided to it from the state exchequer.
So effectively the taxpayers have paid to bail out the Saradha depositor. And now, they might be able to recover some money - we don’t yet know how much - from the sale of assets.
Like the NSEL deal, the concept of Saradha’s demise and the lack of any regulatory oversight (though SEBI did try earlier) has resulted in only one failure - that of trust.
We will have to seriously firm up actions against fraud in the banking system as well, even though they are reasonably well regulated. However it is not unlikely that many frauds have been “evergreened” by continuing to give such companies loans as long as they pay just the interest. It’s going to take a downturn - a serious one - to uncover the extent of such frauds. And then, it will have to been seen how the regulators behave.