Potato Ponzi Scheme Perpetrators Ordered To Issue Refunds Or Face Charges

Continuing a recent trend of fraudulent schemes based on highly-unusual investments (see cows, goats, and even emus), Indian securities regulators have ordered the perpetrators of a potato-trading Ponzi scheme to return funds to investors or risk facing civil and criminal prosecution.  Sumangal Industries Ltd. ("Sumangal"), based in Kolkata, India, was ordered by the Securities and Exchange Board of India ("SEBI"), to wind down the scheme and return investor funds within three months.  The scheme, which had offered over 100% returns to investors, had recently been issued a show-cause notice by SEBI in April 2013.

Sumangal began attracting the attention of SEBI when regulators discovered a newspaper advertisement soliciting the public to invest in Sumangal's 'Flexi Potato Purchase Scheme'.  The company pitched the investment as a lucrative opportunity, promising exorbitant returns ranging from 20% - 100% within a 15-month period.  Investors were told the returns were due to the company's expertise in the potato trade; Sumangal would buy potatoes from the market when prices were low, keeping them in cold storage until the price later rose and the potatoes could be resold at a hefty profit.  It is unknown how many investors were ultimately induced to contribute to the scheme.

After commencing a probe into Sumangal following discovery of the newspaper advertisement, SEBI ordered the company to cease the venture until it had obtained the proper licensure.  Sumangal initially pushed back, claiming that it had a license for its potato trsading, and that it "was dealing in agricultural and non-agricultural products within and outside India."  However, when pressed, Sumangal was unable to provide substantive proof in support of these claims.

Indian securities regulators have significantly increased oversight of the so-called 'collective investment schemes' in light of the recent discovery of a massive Ponzi scheme that is said to have duped investors out of billions of dollars.  In additional to financial ruin for many, the schemes have also left a swath of suicides in their wake.