The 

Saradha Group financial scandal was a major financial

scam and alleged political scandal caused by the collapse of
a Ponzi scheme run by Saradha Group, a consortium of over 200
private companies that was believed to be running collective
investment schemes popularly but incorrectly referred to as chit
funds in Eastern India.

The group collected around ₹200 to 300 billion (US$4–

6 billion) from over 1.7 million depositors before it collapsed in
April 2013. In the aftermath of the scandal, the State
Government of West Bengal where the Saradha Group and most
of its investors were based instituted an inquiry commission to
investigate the collapse. The State government also set up a fund
of ₹5 billion (US$66 million) to ensure that low-income
investors were not bankrupted.

The central government through the Income Tax Department

and Enforcement Directorate launched a multi-agency probe to
investigate the Saradha scam and similar Ponzi schemes. In May
2014, the Supreme Court of India, inter-state ramifications,
possible international money laundering, serious regulatory
failures and alleged political nexus, transferred all investigations
into the Saradha scam and other Ponzi schemes to the Central
Bureau of Investigation (CBI), India's federal investigative
agency. Many prominent personalities were arrested for their
alleged involvement in the scam including two Members of
Parliament (MP) - Kunal Ghosh and Srinjoy Bose from
the Trinamool Congress, former West Bengal Director General
of Police Rajat Majumdar, a top football club official Debabrata
Sarkar, Sports and Transport minister in the Trinamool
Congress government Madan Mitra.

The scam has often been compared to the Sanchayita investment

scam, a multi crore rupees scam that occurred in West Bengal in
the 1970s, complaints related to which led to the formation of
the Prize Chits and Money Circulation Schemes (Banning) Act
of 1978.

Financial operations

Money collected by Saradha Group of companies per year in

billion INR. 95% of the fund was collected in the last three years
of the scam. Source: 2014 SIT Report

The companies that were comprised by Saradha Group were

incorporated in 2006. Its name is a cacography of Sarada Devi,
the wife and spiritual counterpart of Ramakrishna Paramahamsa
—a nineteenth-century mystic of Bengal. This duplicitous
association gave Saradha Group a veneer of respectability. Like
all Ponzi schemes, Saradha Group promised astronomical
returns in fanciful but credible investments. Its funds were sold
on commission by agents recruited from local rural
communities. Between 25 and 40% of the deposit was returned
to these agents as commissions and lucrative gifts to quickly
build up a wide agent pyramid. The group used a nexus of
companies to launder money and evade regulators.[41]

Initially, the frontline companies collected money from the

public by issuing secured debentures and redeemable
preferential bonds. Under Indian Securities regulations and
section 67 of the Indian Companies Act (1956), a company
cannot raise capital from more than 50 people without issuing a
proper prospectus and balance sheet. Its accounts must be
audited and it must also have explicit permission to operate from
the market regulator Securities and Exchange Board of
India (SEBI).

SEBI first confronted Saradha Group in 2009. Saradha Group

adapted by opening up to 200 new companies to create more
cross-holdings. This created an extremely complex tiered
corporate structure to confound SEBI by hampering their ability
to consolidate blame. SEBI persisted in its investigation through
2010. Saradha Group reacted by changing its methods of raising
capital. In West Bengal, Jharkhand, Assam and Chhattisgarh, it
began operating variations of collective investment schemes
(CIS) involving tourism packages, forward travel and hotel
booking timeshare credit transfer, real estate, infrastructure
finance, and motorcycle manufacturing. Investors were rarely
informed about the true nature of their investments. Instead,
many were told they would get high returns after a fixed period.
With other investors, the investment was fraudulently sold in the
form of a chit fund. Under the Chit Fund Act (1982), chit funds
are regulated by state governments rather than SEBI.

SEBI warned the state government of West Bengal about

Saradha Group's chit fund activities in 2011, again prompting
Saradha Group to change its methods. This time, it acquired and
sold large numbers of shares of various listed companies then
embezzled the proceeds of the sale through accounts which as of
September 2014 have not been identified. Meanwhile, Saradha
Group started laundering a large portion of its funds to
Duba, South Africa and Singapore. By 2012, SEBI was able to
classify the group's activities as collective investment schemes
rather than chit funds—and demanded that it immediately stop
operating its investment schemes until it received permission to
operate from SEBI. Saradha Group did not comply with this
ruling and continued to operate until its collapse in April 2013.