New Delhi, July 24: The Union finance ministry has written to all state governments to crack down on pyramid financial schemes using the Prize Chits and Money Circulation Schemes (Banning) Act of 1978.

“We expect a crackdown by state police forces based on co-ordinated investigations. The Central Economic Intelligence Bureau and the income tax department would be involved in action but the primary job will be the state’s,” said top CEIB officials.

They said several Bengal-based pyramid schemes are on the radar. Calcutta, alone, has 27 registered chit funds.

The Supreme Court yesterday dismissed Bengal-based Rose Valley Real Estates’ plea to recall its earlier order, leading to the possibility of Calcutta High Court vacating its stay on Sebi proceedings against the company.

Last year, the Securities and Exchange Board of India (Sebi) had banned Rose Valley from collecting money from the public as it does not have the market regulator’s approval to run such a scheme.

Pyramid schemes, which lure investors by promising unusually high rate of returns, often pack up leaving investors at the bottom of the pyramid without any returns. North Block has formed a high-level inter-ministerial group co-ordinated by the Central Economic Intelligence Bureau to crack down on such schemes which offer up to 500 per cent returns.

Tough actions became necessary after the Speak Asia scandal burst into the open last year.

Singapore-based Speak Asia collected Rs 2,000 crore from as many as 1.9 million Indian investors by getting each of them to pay Rs 11,000 against promises of payments for every filled up questionnaire.

When the ponzi scheme failed to pay investors, Mumbai police arrested top officials, including Speak Asia’s chief operating officer. Former expenditure secretary E.A.S. Sarma, too, had written to Prime Minister Manmohan Singh saying “these pyramid companies are a scourge to any economy”.

A study of pyramid and multi-level marketing schemes by the corporate affairs ministry pointed out that these were inherently money circulation schemes and violated the Prize Chits and Money Circulation Schemes (Banning) Act.

The report also said that products by multi-level marketing companies were “over-priced” and designed to pay huge commissions to people sitting at the top of the pyramid and earn exorbitant profits for the firm at the expense of those at the bottom of the pyramid.

“Such schemes enrich the company and the top-of-the-pyramid participants at the cost of 90 per cent of participants who are at the bottom two levels.”

Finance ministry officials said the letter had been sent to state governments to start a nation-wide clean-up.

The Tripura government has already informed North Block that it intends to use the Tripura Protection of Interest of Depositors (Amendment) 2011 Act to crack down on such schemes.

The bill has recently been cleared by the governor of Tripura and rules under the act will soon be drafted for action.

The Tripura act states that no company or organisation is allowed to collect money from the public without prior permission from the Reserve Bank of India nor allowed to pay interest rates which do not confirm with RBI guidelines.