Millions of small investors in eastern India have lost their life savings with the collapse of the politically well-wired Saradha Group, whose boss, Sudipta Sen, is now behind bars and with more than US$800 million having disappeared, one of the biggest scams in Indian history.

It is a scandal that appears directly related to the failures of India’s financial and regulatory agencies. Beyond that, Saradha Group’s demise is an archetypal story of cheating hundreds of thousands of poor families, offering unbelievable returns up to 30 percent annually against deposits, in what appears to have been a classic Ponzi scheme, built partly on the cachet that rubbed off from high-level officials recruited by Sen.

Arrested with the group boss, for instance, were a dozen high profile individuals including Saradha’s media wing boss Kunal Ghosh, former Bengal police chief Rajat Majumdar, East Bengal football club official Debabrata Sarkar, businessman Sandhir Agarwal, popular Assamese singer Sadananda Gogoi and others. Shankar Barua,the former director general of the Assam police, committed suicide after being suspected as a beneficiary. Raids have been carried out on the residence of Himanta Biswa Sarma, a former Assam health and education minister,and the offices of three satellite news channels.

The CBI suspects that Sadananda introduced Sen to former Assam minister Dr Sarma and State police chief Barua. Sadananda was arrested on Sept. 12.

Both the Securities and Exchange Board of India and the Reserve Bank of India are being blamed for their ineffectiveness. A High Court has directed that both SEBI and RBI should be questioned over their inability to control scams by mysterious companies like Saradha, called non-banking financial companies, or NBFCs.

Prime Minister Narendra Modi has become personally involved, reportedly telling the Central Bureau of Investigation to go ahead with the probe. The prime minister’s office has warned opposition Union-held ministries not to interfere.

Headquartered in the eastern city of Kolkata, the Saradha Group is suspected of having collected more than Rs50 billion (US$816.3 million) through various schemes run by over 200 companies from gullible investors with little access to formal banking or other financial institutions in poor provinces.

Sen employed more than 1,600 workers and 200,000 agents, offering hefty commissions to lure largely rural people to deposit their money in 12 Saradha companies. Although Saradha started operations a decade ago, it only appeared above the horizon in 2010. By that time Saradha had entered the media business, publishing six newspapers in English, Hindi and Bengali and operating two Bengali television news channels and three entertainment channels. He donated money to the committees of Durga Puja celebrations, football clubs, other social organizations and hosted lavish dinners in star hotels to attract media attention.

The company hired popular Bengali film personalities like Mithun Chakraborty and Satabdi Roy, both also members of the Indian Parliament, as brand ambassadors. Both Chakraborty and Roy are associated with the Trinamool Congress Party led by West Bengal chief minister Mamata Banerjee. The now-jailed Trinamool lawmaker Kunal Ghosh was appointed CEO of Saradha’s media wing. Thus the general impression was that the party and Banerjee were directly or indirectly involved. Sen exploited the impression, hanging his photograph with the Bengal chief minister in all Saradha offices.

The group attained unprecedented advantages once Banerjee became chief minister in May 2011, defeating Kolkata’s left-front government. Saradha started various money-pooling schemes, camouflaging the deposits in various names like tourism packages, advance hotel booking agencies and reserving space in real estate and other concerns. As with many other such bodies, Saradha also misrepresented itself as a chit fund company, collecting public money under their multilevel marketing structures. The chit fund activities have survived for centuries, recognized as close transactions among members only. They are supposedly prevented from collecting deposits from the general public.

The Rs35-billion scam broke in early 2013 as offices in various parts of the region began closing, with thousands of beneficiaries impatiently demanding their money back at advertised high returns. Hundreds of thousand families have lost any hope, however, resulting in the suicide of nearly 100 dejected investors and agents who lost everything. Disgruntled investors sought court action and high-level probes, sending Sen into hiding after sending a letter to the CBI declaring the collapse of his group. He was finally arrested and jailed in April 2013 in Jammu & Kashmir with two close associates.

Sen was an active member of the ultra-left Naxalite movement that erupted across middle and eastern India during the 1970s before surfacing with a new identity as a business tycoon. Soon he started Saradha, promising high returns that were supposedly insured, saying the funds would be invested in big profit-making projects.

But Pinku Rajbongshi runs a small shop in the Ambari locality of Guwahati in Assam. He is typical of the defrauded, losing deposits of Rs24,000. “I wanted to buy a photocopy machine to increase my income in the shop,” he said. “But today I have lost all my deposits only to ruin my small shop through which I am taking care of our four-member family.”

He said he actually wanted to deposit his money in a conventional bank or small saving schemes run by the Indian Postal Service, but said it was too difficult to open an account, with officers asking for multiple documents.

But not all investors are as simple and semi-literate. Hundreds or perhaps thousands of professionals deposited funds in Saradha type non-banking financial companies for higher interest rates and to avoid income taxes. Dilip Goswami (name changed), a physician based in rural Assam, works in a government hospital. He is not allowed to earn extra money treating patients during the duty-hours. But in practice, the young physician always attends patients in private hospitals.

To hide the amount, the physician preferred to deposit the extra funds in various Saradha schemes. Goswami asserted that he wanted a hefty amount with a maturity return of 30 percent, far above what banks pay, and hidden from his accounted income sources. “People like Dr Goswami help the mysterious NBFCs to survive,” said Amal Borpujari, a local economist. “We must understand that these people avoided paying income tax to the government while depositing their money in such groups and they took the initiative for personal greed only.”

Borpujari acknowledged that hundreds of thousands of rural depositors have no basic economic awareness and little access to formal banking, and thus approach the NBFCs to avoid opening accounts in registered banks far from their villages.

“Here comes the responsibility of a government. The authorities should encourage the people to deposit their money in a government-recognized agency, such that the return can be ensured to the investors,” he said.

The West Bengal government was initially reluctant to hand over the Saradha cases to the CBI, forming its own investigative team. However, the Supreme Court of India intervened and handed over the cases in May. Later, Banerjee welcomed the probe and appointed a judicial inquiry commission headed by Shyamal Sen, a retired high court chief justice. She also announced a Rs5 billion relief fund seeking to ensure that low-income investors get their returns, though the decision was criticized.

Sen is also suspected of having transferred a huge amount of money to foreign banks, which may have disappeared for good. The investigation also covers the flow of Saradha money to a fundamentalist outfit in neighboring Bangladesh. Unconfirmed reports say Jamaat-e-Islami, a fundamentalist Islamic political party, got money from the Saradha boss through Trinamool Congress leader Ahmad Hassan Imran.

Bangladesh Prime Minister Sheikh Hasina has also expressed concern over the matter as Jamaat-e-Islami is a rival to her political party (Awami League) in Dhaka. Moreover in the recent past, Jamaat-e-Islami has been found responsible for killing innocent Bangladeshi nationals in general and a number of Awami League leaders in particular.