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The Securities and Exchange Commission of Pakistan (SECP) is planning to freeze accounts and seize documents/properties of corporate entities offering fraudulent investment and schemes, through internet/online, promising hefty profits and unrealistic incentives to trap innocent people.

The issue of prize scams was discussed in detail during the second day of SECP's Registrars Conference concluded here on Sunday with the theme of "Winning the Business Trust".

During the conference, a presentation was made on the prize scams and SECP's strategy to effectively deal with such cases through enforcement and awareness among the general public.

The SECP had received numerous complaints that some companies were offering investment plans such as leasing/financing of cars, motorcycles, houses etc and involved in illegal banking business without lawful authority. These activities were prohibited and contrary to the object clause of their Memorandum of Association. These entities trap people by offering high rates of return with little risk to investors. They market their schemes through local newspapers, social media, websites and pamphlets etc.

SECP officials informed the conference that the options available to the Commission including winding up of companies is a tedious process as it is required to be filed in court which consumes time. However, immediate actions are required to be taken in a timely manner in such scenarios where interests of general public are involved.

The Commission may consider exercising powers to freeze accounts and seizure of documents/property under section 255 of the Companies Act, 2017 for immediate action. Moreover, the Commission can also in terms of section 29(4) of the SECP Act, 1997 call for assistance from any law enforcement agency.

It has been found that most of the affectees of these schemes are people living in remote areas, Illiterate public and retired individuals having sufficient funds.

SECP officials informed the conference that such companies execute activities through physical presence [even in cities other than registered office address as in the case of 3A Alliance (Private) Limited] or operating online. A new wave of fake emails, posts, phone-calls offering prizes, lucky draws, false promotions mostly operating through internet are doing the rounds. In all such cases, general public are deprived of their hard-earned money.

Modus operandi adopted by such companies included deposit taking from public while offering Ponzi/Multi-Level Marketing (MLM), referral marketing, pyramid business, employment schemes, investment plans, leasing business, lottery, banking, crypto currency (virtual currency/ bitcoin), testing services for jobs, loans schemes, real estate projects, relief/Charity scams, booking of goods, ie, vehicles, tractors and online offer for work and Islamic products (modaraba, musharika).

To deal with such companies offering such fraudulent schemes, the SECP's actions included sanction for filing winding up petition under section 304 read with section 301 of the Companies Act, 2017, disqualification of directors under section 172 of the Companies Act, 2017,referral of case to National Accountability Bureau (NAB) and Federal Investigation Agency (FIA) for enquiry and investigation as well as freezing of assets/accounts, public awareness messages, inspection of books of accounts under section 221 of the Companies Act, 2017 and Investigations under section 256 of the Companies Act, 2017 on the basis of inspection report.

The general measures to deal with such cases included introducing KYC at the time of incorporation is imperative, adopting a proactive role, raise Red Flags, using the expertise/assistance of LEAs for surveillance or conducting discreet visits, joint awareness programmes (SECP & LEAs) to educate the masses and beware of any lottery scheme that asks for payment of fee or large deposits for winning a prize is a scam. The SECP has time and again clarified to the masse that mere registration of a company with it, does not necessarily mean that these companies are allowed to take illegal deposits from general public.

Copyright Business Recorder, 2019