Sudipta Sen was on the run when police arrested him on April 23 at Hotel Snow Land, a resort with views of the Himalayas in Sonamarg, India, about 2,700 kilometers northwest of his Kolkata base. Sen’s Saradha Realty India Ltd., the anchor of an empire that took in small deposits and promised payouts of land, apartments or a refund of clients’ money with interest rates as high as 24 percent, was defaulting on thousands of deals. Employees of Sen’s media companies hadn’t gotten paychecks in months. As cash dried up, 1.74 million customers saw savings vanish, Bloomberg Markets magazine will report in its February issue. The upheaval didn’t end with Saradha. Panicked depositors rushed to pull money from similar companies. Since April, more than 34 people have committed suicide, 13 of them Saradha agents and investors. A 50-year-old domestic helper south of Kolkata in Baruipur, one of many hubs of Sen’s activities, set herself ablaze after losing 30,000 rupees ($482). Saradha Group, the parent of Saradha Realty, was among hundreds of unlicensed deposit-taking enterprises that serve India’s poor -- and skirt regulators. Clients scraped up as little as 100 rupees a month in a country where the World Bank’s Global Financial Inclusion Database found just 35 percent of adults had a bank account and 8 percent borrowed through formal channels in 2011. Goat Farmers India requires such quasi-banks to register with state or federal authorities. Many don’t. Saradha and others avoid oversight by disguising themselves as real estate developers, goat farmers and emu raisers, says U.K. Sinha, chairman of the Securities and Exchange Board of India, the nation’s capital markets regulator, known as SEBI. Sen, chairman and managing director of Saradha Group, said he owned 160 companies. About 15 operated as real firms, Sen’s lawyer Samir Das says. Unlawful deposit companies proliferate in India. Saradha took in at least $200 million based on preliminary figures, Sinha says. Actual numbers may be bigger, he says. Such firms have raised a total of more than $2 billion, Sinha estimates. Sen has been jailed since his arrest. Police have filed 155 charge sheets, formal documents of accusation, against Sen, Das says. Sivaji Ghosh, additional director general of the West Bengal police’s criminal investigation department, said in mid-December he expects a special court that will handle all Saradha-related cases to be set up soon. Saradha Fallout What makes Saradha’s collapse noteworthy is the turmoil it spread across six states, a territory the size of Spain in eastern India, where access to banks is limited. Depositors protested and mobs ganged up on agents. Abhimanyu Nayak, who worked for another unregistered collection firm called Seashore Group, jumped in front of a train in Odisha state in May as investors hounded him for their cash. Saradha and its aftermath hurt so many people that the government had to step in, says Pratip Kar, who served as SEBI’s executive director from 1992 to 2006 and now works as a World Bank consultant. “Ponzi schemes like Saradha create widespread havoc, like a tsunami,” says Kar, describing ploys in which companies repay depositors with money from new investors. “When the shopkeeper and the household helper and the rickshaw pullers are robbed of their minuscule savings, it is painful.” New Powers The Saradha fiasco sparked an overhaul of SEBI’s powers. The regulator has shut 15 companies and barred the owners from the capital markets. It’s investigating 20 more, Sinha says. That’s a fraction of India’s fraudulent collection businesses, says Prithvi Haldea, chairman of researcher Prime Database in New Delhi. “There are countless scams currently in operation in various sizes, shapes and forms,” he says. “Saradha led to a new law and that’s a good thing, but is it geared toward conquering all scams? Certainly not.” In India, several regulators supervise banks and financial companies -- creating gaps that scammers exploit. SEBI monitors so-called collective investment schemes, known as CISs, which typically deal with money pooled from customers. SEBI, which had power to investigate but not enforce, can now search and seize property and recover wrongful gains, Sinha says. The government can also classify pools of more than 1 billion rupees as CISs and put them under SEBI’s purview. In the past, no threshold existed. Read more.