Explained: What is the Saradha scam? How is Trinamool linked?

The Ponzi scheme In the early 2000s, businessman Sudipto Sen set up the Saradha Group, and launched what the securities market regulator Securities and Exchange Board of India (SEBI) later categorised as a collective investment scheme. The Saradha Group used a consortium of companies to tap small investors, promising them very high returns. Like in a classic Ponzi scheme, money was collected through a wide network of agents, who were paid commissions of over 25%. In a few years, Saradha’s raised about Rs 2,5000000000. It built its brand through filmstar endorsements, investments in popular football clubs, ownership of multiple media outlets, and sponsorship of cultural events such as Durga Pujas. The scheme expanded to Odisha, Assam, and Tripura, and the number of investors reached close to 1700000. How Saradha operated Saradha began by issuing secured debentures and redeemable preferential bonds to the public in violation of SEBI rules that bar companies from raising capital from more than 50 people without issuing a proper prospectus and balance sheet. Companies must also have SEBI permission to operate, and must get their accounts audited. After SEBI raised a flag in 2009, the Group diversified, opening 239 companies, and building a complex corporate structure. Through schemes involving tourism packages, forward travel and hotel booking, timeshare credit transfer, real estate, infrastructure finance, and motorcycle manufacturing, the Saradha Group continued to raise capital from ordinary people. The bulk of the investors put in around Rs 50,000 each. Many others invested through chit funds under the Chit Fund Act, 1982. Chit funds are regulated by the state government.