In
one of the biggest cross-border regulatory cooperation, markets
watchdog Sebi has helped its counterpart in the US bust a major
investment scam being run through online social media platforms. The
'Profit Paradise' scam was being run by two Indians -- one based in
Mumbai and another in Hyderabad -- in the name of a 'High Yield
Investment Product (HYIP)' wherein gullible investors were being
enticed through pervasive social media pitches on Facebook, Twitter,
Google Plus and YouTube. Such FYIP schemes have become very popular
on various online platforms, wherein the operators solicit
investments in securities, but most of them have turned to be yet
another frontier for defrauding gullible investors in name of high
and quick returns. In the latest case, the operators of 'Profit
Paradise' were inviting investors to deposit funds that would
supposedly be pooled with other investors' funds to make "huge
profits" in forex, stocks, and commodity trading. Although
operating from India, they disguised Profits Paradise's physical
location by providing the false Internet data, indicating that Profit
Paradise's operations were within the United States when they were
not. While probing the case, the US markets regulator SEC (Securities
and Exchange Commission) sought assistance from its peers in India,
Canada and Hong Kong. After completing the probe and announcing
charges against the two Indians, Pankaj Srivastava and Nataraj
Kavuri, SEC said it "appreciates the assistance of the
Securities and Exchange Board of India (Sebi) as well as the Autorite
des Marches Financiers in Quebec, the Ontario Securities Commission,
and the Securities and Futures Commission in Hong Kong." The
case is being seen as one of the biggest in terms of cross-border
cooperation among regulators to crack down on illicit investment
schemes. Both Sebi and SEC are members of International Organisation
of Securities Commission (IOSCO), an international policy forum for
securities regulators that also sets global standards for securities
regulation. Sebi and SEC are also signatory to the IOSCO MMoU which
represents a common understanding amongst its signatories about how
they will consult, cooperate, and exchange information for capital
market enforcement purposes. The MMoU sets an international benchmark
for cross-border co-operation. In the present case also, Sebi
extended all necessary assistance to the SEC within the framework of
IOSCO-MMoU. As per latest available data, Sebi received as many as 94
requests from overseas securities regulators for information during
2013-14 -- more than double of what it had got in each of the two
preceding fiscal years.
Sebi
had received 40 requests from foreign peers in 2012-13, while it had
got 37 requests in 2011-12. At the same time, Sebi made 17 requests
to capital markets regulators in other countries for information in
2013-14 as against 9 requests in the previous financial year. This is
the highest number of requests sent out by the Indian market watchdog
since 2011-12. The capital market regulator had sent out 9 requests
each for regulatory assistance in 2011-12 and 2012-13 to foreign
securities market watchdogs. Sebi has in place a robust system for
information sharing and coordination with foreign regulators to nab
manipulators and fraudsters operating across boundaries in a
globalised world. In 2003, Sebi had signed the International
Organisation of Securities Commissions (IOSCO) multi-lateral
memorandum of understanding (MMoU) for mutual assistance on
enforcement and compliance of regulations with several countries
including Securities Exchange Commission of US. One of the IOSCO
principles require the regulators to establish information sharing
mechanisms, which set out when and how they will share both public
and non-public information with their domestic and foreign
counterparts. "As a crucial part of its commitment towards the
IOSCO MMoU concerning consultation and cooperation and the exchange
of information, to which Sebi has been a signatory since April 2003,
Sebi provides cooperation and facilitates exchange in other
jurisdictions," the market regulator said in its latest annual
report for the year 2013-14. In the Profit Paradise case, SEC has
charged Pankaj Srivastava and Nataraj Kavuri of offering "guaranteed"
daily profits by anonymously soliciting investments for their
purported investment management company. The SEC has charged that the
guaranteed returns were false, and that the investments being offered
bore the hallmark of a fraudulent high-yield investment program.
Srivastava and Kavuri attempted to conceal their identities by
supplying a fictitious name and contact information when registering
Profits Paradise’s website address. They also communicated under
the fake names of 'Paul Allen' and 'Nathan Jones'. After the SEC
began its investigation into the investment offering, the Profits
Paradise website was discontinued.
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