Economic Offences Wing

SEBI can penalise, direct and debar. It is not a police force. When a securities fraud is also a crime — cheating, forgery, criminal breach of trust — someone has to investigate it as one.

The Economic Offences Wing of the Central Bureau of Investigation is that someone for serious financial crime. It was created in 1964 to deal with offences under the Indian Penal Code and special Acts relating mainly to serious frauds in banks, stock exchanges, financial institutions and companies, misappropriation of public funds, criminal breach of trust, customs violations, counterfeiting and more.

The securities and stock market scam of 1992 showed it needed to be bigger. In 1994 it became a full-fledged Economic Offences Division.

Structure. The Economic Offences Division formed in 1994 has four zones, one of which focuses exclusively on large and complicated security and bank frauds.

Areas currently covered, in the workbook's list:

State EOWs. State governments have also set up their own EOWs to deal with commercial crimes, thefts of idols, bogus lottery tickets and other offences.

How it fits with the others in Chapter 2.

• SEBI regulates the securities market and can direct, penalise and order disgorgement.
• SFIO (under MCA) investigates complex frauds under the Companies Act on the Central Government's assignment.
• FIU-IND receives and analyses cash and suspicious transaction reports and shares intelligence with enforcement agencies.
• Police authorities enforce the Bharatiya Nyaya Sanhita, 2023, whose sections on criminal breach of trust, forgery and falsification of accounts are relevant to the securities market.

Illustrative figures. A syndicate of 14 accounts trades a thinly traded small-cap among themselves for four months, lifting it from Rs 38 to Rs 412. They then sell Rs 96 crore of shares to retail investors through social-media tips, and the price collapses to Rs 41.

Rise engineered        = 412 ÷ 38 = about 10.8 times
Retail money taken     = Rs 96 crore
Value left after crash ≈ 96 × (41 ÷ 412) = about Rs 9.6 crore

SEBI acts on the market side: interim orders restraining the 14 entities from dealing in securities, impounding proceeds, and later disgorgement.

The criminal side is different work. The syndicate's operator also forged KYC documents for six of the accounts and laundered sale proceeds through shell entities. Those are crimes — manipulation of share prices sits squarely in area 5 of the CBI's Economic Offences Division, and forgery and cheating are offences under the criminal law.

The FIU-IND, which has received suspicious transaction reports from the banks concerned, can share that intelligence with the investigating agency.

Same event; a regulator, an intelligence unit and a police investigator, each with its own powers.

Chapter 2.3.4 (Economic Offences Wing), in Other Agencies in the Financial Market; the chapter's learning objectives name ROC, EOW and FIU-India. Expect the dates — 1964 creation, 1992 scam, 1994 division with four zones — and a question on which of a list of offences falls within its remit.

• Created in 1964; expanded into a full Economic Offences Division in 1994, following the 1992 securities scam. Three years, three events.
• Four zones, one exclusively for large and complicated security and bank frauds.
• The EOW is part of the CBI — not of SEBI, the Ministry of Corporate Affairs or RBI.
• SFIO is a different agency, under the MCA, investigating under the Companies Act.
• State EOWs exist too, dealing with commercial crimes, idol thefts and bogus lottery tickets.
• Insider trading and share price manipulation are both named in the EOD's areas — alongside non-financial crimes such as wildlife offences and antique smuggling.