SEBI issues norms to classify illegal CIS schemes as fraud

India Infoline News Service | Mumbai |

The new rules mention activities to be covered under unfair trade practices to hold individuals and companies guilty for manipulations

The Securities and Exchange Board of India (SEBI) has notified new norms to classify illegal collective investment schemes (CIS) as frauds and impose penalties of up to three times of their profits.

The new rules also expand the list of activities to be covered under fraudulent and unfair trade practices to hold individuals as well as companies equally guilty for manipulations.

The rules will now include ‘illegal mobilization of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person,” SEBI said in a circular.

The amendments have been made with effect from September 6, 2013 to SEBI’s Prevention of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, a gazette notification said.

According to the amendments, the list of such practices would now include “illegal mobilisation of funds by sponsoring or causing to be sponsored or carrying on or causing to be carried on any collective investment scheme by any person”.

Besides, an “explanation” has been inserted into these regulations to state that the list of such practices is not exhaustive in nature and the norms would be applicable to all categories of persons and entities.

The amendment would allow the list of ‘fraudulent and unfair trade practices’ to remain open ended, rather than restricting it to 19 broad categories currently.

The SEBI has also decided to strictly enforce these norms, which cover a wide array of manipulative activities, such as publishing advertisements with misleading or distorted information to influence the investors’ decision, planting of false or misleading news and inducing investors to carry out transactions for personal gains.
 

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