In some respect, this was a typical Ponzi scheme. He would take money from newer investors and offer good returns to the earlier depositors. It was built on the premise that the number of depositors would keep increasing. And, in his case, while there were a few complaints that he did not pay on time, it should be said that most of his depositors in the early days were pretty happy.

Once he got the financial scheme going, he diversified into other fields. He did come good on his promise. But that’s how these Ponzi schemes work. He was always very careful that his image or his story was never tarnished. That is how he brought in newer depositors. There was no bad word of mouth or media coverage of failed payments, etc. 

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Once his financial business became big, he started diversifying into other sectors. And as with any Indian, or global big business, he got into real estate and construction. He started buying huge banks of land. Because if you are going to have to pay out interests, either you park the money in the stock markets, which he was doing to some extent, or you use the money to give loans to corporates. Or you buy cheap real estate and sell at market rates. At the end of the day he had to generate more interest than he was payinghis depositors.

Stayed in finance

One area he never got into was manufacturing. All his businesses revolved around financial, real estate or media industries. In financial sectors it is easy to multiply your money. Whereas in manufacturing, money comes slow and it is a lot of hard work. He was more into cash-related businesses where rotating money was easier.

Along the way, he acquired in spades what I call CQ—celebrity quotient. He used every single bit of this CQ to advance his empire, be it from Bollywood, Hollywood, the global music scene, tennis stars, Indian cricketers or international celebrities. That was his way of showing off his cultural power. Everybody knew he had hard power. These connections had a bigger impact on his target audience—the very poor from the lower classes, who saw these associations as endorsement of Roy. 

SEBI ushers the fall

Once he became too big, he started hobnobbing with politicians. He was close to Samajwadi Party, but he also helped the BJP in certain aspects. Because he was close to a lot of political middlemen, who anyway were close to several parties in their wheeling and dealing, he had friends across parties. And because of his political and celebrity connections, he started facing a certain amount of jealousy and animosity from rivals. That is how the complaints went out to various regulators and government agencies.

His biggest problem came when he raised huge money via a suspect financial instrument, which was not defined very clearly by the regulators. It involved complicated convertible debentures. Then SEBI got stuck into him, saying, ‘You are raising tens of thousands of crores using these instruments which are not even clearly defined by us’. He defended the move, saying, ‘If you have not defined it, you cannot be the regulatory authority for my instruments’. But SEBI put its foot down and came down hard on him, telling Sahara they can’t sell it to retail investors. That is how the whole thing went to courts and his downfall started. 

Genuine investors or benami?

However, what could never be clearly identified was how much of the investors were real and how much was benami money. Even SEBI couldn’t clearly find out. 

When the courts ruled that Sahara has to return money to depositors, Roy said he would return it to them, but SEBI claimed a lot of it was benami investments, so the courts asked him to deposit the money. But it could never be established who the real investors were.

There is a fair bit of circumstantial evidence that a lot of tainted money came in from powerful people who wanted to hide their money and that is what these debentures were used for. But SEBI couldn’t ever muster any concrete proof. 

This was when the court asked him to deposit Rs 50,000 or Rs 60,000 crore, which was dubbed as the most expensive bail bond in the world, while not actually being a bail bond. And when all his assets were frozen, his financial empire crumbled because he couldn’t access any of his wealth to get out of the hole he found himself in. 

In the end, the most curious aspect of this business is that whatever money could be paid has been paid, and no large groups of investors have come out to complain against him. Even in the Jet Airways scandal, thousands of employees hit the streets. But in Sahara’s case, there was no group of investors—actual people—come out in the open. And with his passing, the chances that any of them will come out is also very low now. 

As told to Krishnakumar Padmanabhan

Alam Srinivas is a journalist and bestselling business author