Menace of Unregulated Investment Schemes!

No stopping mushrooming Ponzi schemes!

SEBI has put the brakes on an investment scheme to channelize money into farm land and agriculture, setup without due registration as a collective investment scheme.

The subject is quite nostalgic as the concept of fractional investing in agriculture took roots in Madras and Tamil Nadu in the early 1980s.

The pioneer was Maxworth Orchards, promoted by R Subramaniam who also pioneered the concept of holiday time share in the country a few years earlier to setting up Maxworth Orchards.

Investors wishing to own a piece of land and enjoy the fruits of the prosperity promised through an annual harvest of the tastiest mangoes on earth or become wealthy by tons of tamarind grown in Tirunelveli, made the purchase of land directly in their names. The company only ‘facilitated’ the process as agricultural land cannot be owned by a corporate!

The company acted as an agent to cultivate the lands owned by the individual investors. Its revenue stream was from the management and other fees, like the modern-day AMCs of mutual funds.

When Maxworth Orchards went public the issue was a roaring success with oversubscription beyond anyone’ imagination! Maxworth predates SEBI’ creation.

Maxworth group started another company Sterling Tree Magnum with the object of ownership of teak wood trees similar to mango and tamarind plantations.

The success of this idea led to the mushrooming of lookalikes. Anubhav Plantations, Parasumpuria Plantations, Enbee plantations and a host similar outfit each offering something better than the competitor hit the stands in rapid succession. Most of these companies had their origins in Chennai and Tamil Nadu

Even in an era when money was so nowhere as abundant as now, these ventures managed to get sizeable investments from mostly the middle and lower middle class who were otherwise wary of the risky terrain of stock investment and had wearied of defaulting NBFCs and Chit funds!

The thirst for a superlative return with an apparent capital protection drove the multiplicity of such schemes, including an innovative one to rear emus in the sweltering heat of south T N!

The farm/agriculture investment appealed to the psyche of the gullible ones as the ownership document computer typed on a stamp paper with the seal of the sub registrar took the authenticity concern out of anyone’ mind.

They also believed a bird in hand was worth many in the bush!

Needless to say, that none of these names exist anymore except may be in the cause list of some high courts and no count exists of the amount of money lost by the middle class in particular.

In many households, the spouses invested without the other knowing, with the idea of showering the partner with riches on the silver or the golden wedding anniversary! They only ended up stepping on each other at the court hall!

After some years of hibernation, the virus is possibly resurfacing in a different form. The regulator has tirelessly tried to tinker the text of the law to keep plugging gaps which has been exploited relentlessly.

Growpital, which is stopped from taking more money as per the latest SEBI order operates in a different model.

The existence of LLP as a vehicle with no limits on the number of partners has come in handy for these structures.

Growpital is perhaps an exception that has come under the scanner. There are other outfits that operate similarly.

These promoters of collective investment seek to avoid the AIF regulations that carry a lot more regulatory rigor and a high investment threshold.

As many LLPs are formed as convenient. and investors put in their money in those.

Smart Owner or Growpital, as the case may be, is the asset manager or the brand for inviting the funds. Each LLP will have different names.

The funds are fungible and little traceability exist on how and where they move. The operational parameters are seldom transparent and how much money is taken out of the LLP for what purpose is rarely known.

When the audited accounts of some listed companies are themselves not trustworthy, what to say about these outfits! The investors generally don’t get any audited accounts. May be some exceptions exist.

The promised return is generally maintained out of the new inflows and the structure of the ponzi schemes is very much the model in these as well.

The early investors who get good returns and profitable exits typically become the ambassadors for these products. Investment consultants are tipped liberally by these funds to sell them with abandon.

When ultimately, the music stops, little can be done as even assuming some actual investments had taken place, they are in illiquid land parcels and an LLP ownership structure with none of the investors knowing the other is a perfect storm.

Those with some connections in the police may manage to register FIRs but it is most likely the loyalty of the force would have already been mortgaged!

Can SEBI be blamed for not unearthing all such cases in existence? Definitely, not!

However, the whole process of registering a complaint with SEBI is most tiring and very few have the tenacity to do the online filling up of the form for this.

SEBI needs to make whistle blowing easy to be able to catch more of these.  

Growpital is not a smart name for a scheme promising big returns!

Ask any home maker about pital !!