Art funds - illegal offerings - another Satyam?

Today's Mint reports on the first page about art funds indulging in all forms of illegal activities including inflating the price of art objects, tax evasion, money laundering, faking bills, price rigging, tax haven related party transaction, and quotes an anonymous government officer as stating:

"Art houses can use these fictitious purchase bills to set an inflated benchmark price for works by artists, causing genuine investors to pay more, according to the official. “Some of the art galleries have inflated the price of certain artists up to as much as 700%,” the official said."

Art funds are the current equivalents of plantation schemes of the 1990s - highly dubious and clearly illegal form of rasing money from investors. An art fund is required to register under the SEBI (Collective Investment Scheme) Regulations of 1999 and get a rating. Since none of the art funds which have raised money from investors has registered these are per se illegal activities. SEBI had in fact put out a warning to investors in Feb 2008 from which I quote:

"This message is issued by SEBI in the interest of investors with regard to their
investments in Art Funds, funds/schemes launched by companies or any entity formed for
the purpose. From the analysis of the characteristics of ‘art funds’ these are ‘collective
investment schemes’ as defined under section 11AA (2) of the SEBI Act, 1992. The
schemes/funds have been launched / floated by these entities without obtaining a
certificate of registration in accordance with the SEBI (Collective Investment Schemes)
Regulations, 1999 (the Regulations).

In terms of section 12 (1B) of the SEBI Act, 1992 no “person” shall sponsor or cause to
be sponsored or cause to be carried on a collective investment scheme unless he obtains a
certificate of registration from the Board in accordance with the regulations.

Regulation 3 of the Regulations permits only a ‘Collective Investment Management
Company’ having certificate of registration from Board to launch collective investment
scheme. Thus, only a company which has been granted certificate of registration by the
Board in accordance with the Regulations can launch or sponsor a collective investment
scheme. In other words, for a collective investment scheme to raise money from the
public it is prerequisite that the entity must (a) be a company and (b) registered with
SEBI as a Collective Investment Management Company.

Therefore, the launching/ floating of the ‘art funds’ or schemes without obtaining a
certificate of registration from the Board in terms of the provisions of the Regulations
amounts to violation of the provisions of section 12 read with section 11 and 11AA of the
SEBI Act and the Regulations. For such violations, appropriate actions, civil and
criminal, under the SEBI Act may be taken by SEBI against such funds/companies."

Since these entities have been given enough time to wind up or register their schemes, it is high time SEBI should take civil and criminal action so that the investors are compensated fully for these dubious investments. Or should we all wait till it blows up like Satyam?