India’s startup ecosystem in 2025 faces a storm as the Enforcement Directorate (ED) ramps up investigations across gaming, fintech, and e-commerce sectors. What began as a few isolated inquiries has grown into a widespread crackdown that now questions how some of India’s most prominent startups operate. The agency has targeted multiple companies for alleged violations of the Prevention of Money Laundering Act (PMLA) and Foreign Exchange Management Act (FEMA), raising concerns about foreign investments, corporate structures, and overall compliance in the fast-growing digital economy.
Probo: Opinion Trading Platform Under Fire
Probo, an opinion trading platform that allows users to trade on real-world outcomes, has emerged as one of the most high-profile targets this year. In July 2025, the ED conducted raids across multiple locations and seized ₹284.5 crore in assets, alleging that Probo’s operations effectively constitute illegal betting. According to the ED, the platform’s model mirrors gambling since users wager on the likelihood of events, which falls under PMLA scrutiny.
Probo denied any wrongdoing and pledged full cooperation with authorities. On July 15, 2025, the Punjab & Haryana High Court heard the company’s plea to quash the FIR and unfreeze its bank accounts. The court declined interim relief but asked the state to consider partial unfreezing of accounts. The next hearing is scheduled for August 26, leaving the company in a challenging position.
The Probo case highlights India’s regulatory grey zones around prediction markets. As the ED steps in, the debate deepens over whether such platforms qualify as financial innovation or unlicensed betting operations.
Myntra Faces FEMA Allegations
Around the same time, Myntra, the fashion arm of Flipkart, faced a fresh FEMA complaint. The ED accused Myntra of misusing foreign direct investment (FDI) norms to the tune of ₹1,654 crore. Investigators claim the company operated under the wholesale cash-and-carry model, which allows 100% FDI through the automatic route, but in practice, Myntra allegedly engaged in multi-brand retail by routing goods through Vector E-Commerce, a group entity.
The ED contends that Myntra circumvented retail FDI restrictions and violated intra-group sales caps, raising questions about how large e-commerce players structure their operations to remain competitive while navigating India’s restrictive retail regulations. The complaint now lies with the adjudicating authority in Bengaluru, with potential penalties that could reshape Myntra’s operational model.
Simpl: BNPL Startup in the ED’s Crosshairs
The ED also zeroed in on Simpl, a popular buy-now-pay-later (BNPL) startup run by One Sigma Technologies. The agency alleged FDI violations worth ₹913 crore, claiming the company misclassified its core operations. Simpl raised foreign capital under the automatic route by presenting itself as an IT services provider. However, the ED argues that the firm’s activities fall under regulated financial services, which require prior government approval.
This probe underscores a broader regulatory challenge for fintech startups in India. Many of these firms operate in the credit-linked space, where overlapping financial and technology frameworks create opportunities for regulatory arbitrage. For investors and founders, Simpl’s case serves as a warning that missteps in FDI filings can invite heavy scrutiny, even if a company’s operations appear innovative on the surface.
Paytm and Subsidiaries Face Retrospective Scrutiny
The ED’s focus on startups also touched Paytm, one of India’s most recognized fintech brands. In April 2025, the agency issued show-cause notices to One97 Communications, Little Internet, and Nearbuy India, alleging FEMA violations worth ₹611 crore. The case revolves around overseas investments made between 2015 and 2019, before Paytm acquired these entities. The ED claims the investments breached RBI reporting and pricing norms.
Paytm has maintained that the violations predate its ownership and do not affect current operations. Still, the matter highlights how retrospective scrutiny has become a major risk for startups. Acquisitions that once appeared straightforward now face legal review years after completion, creating uncertainty for investors and acquirers alike.
OctaFX: Global Forex Platform Under PMLA Investigation
The ED has not limited its crackdown to domestic startups. OctaFX, a global forex trading platform, is under investigation for allegedly laundering nearly ₹800 crore through unauthorized forex trading in India. The agency claims the company used fake KYC documents, mule accounts, and shell companies to move funds overseas.
In one of the most striking actions of 2025, the ED attached assets worth ₹292 crore, including a yacht and Spanish real estate, under the PMLA. The case reflects how international players leveraging India’s digital market can also fall under the radar if they bypass local regulatory requirements.
Compliance Becomes a Core Startup Risk
The ED’s widening investigations show a clear shift in enforcement priorities. Instead of focusing solely on legacy financial crimes, the agency now examines digital-first companies where rapid growth often comes with regulatory shortcuts.
For founders, compliance risk has become a daily operational concern. Investors, once focused primarily on valuations and market capture, now factor regulatory exposure into their decision-making. Even firms with no intent to break the law can stumble in India’s complex compliance environment, where regulations frequently overlap and interpretations shift.
Many startups face pressure to scale quickly to satisfy investors and secure market share. In doing so, they sometimes adopt aggressive structures that exploit loopholes or take advice framed as “safe shortcuts.” While these shortcuts may offer temporary relief, they often leave companies vulnerable to retrospective probes, as seen in 2025.
The Regulatory Dilemma
The larger issue extends beyond individual cases. India’s regulatory landscape remains fragmented and cumbersome, pushing businesses to navigate multiple authorities and conflicting rules. Many companies break rules not out of intent to defraud but because compliance consumes excessive time and resources.
Regulators in India often interpret their role narrowly, focusing on consumer protection in ways that prioritize penal action over systemic clarity. This approach fosters tokenism, where agencies make high-profile raids but fail to simplify the underlying processes.
If regulators adopt a holistic perspective, balancing investor confidence, ease of doing business, and consumer safety, India could foster a healthier startup ecosystem. A regulatory model that genuinely supports compliance rather than trapping firms in red tape would ultimately benefit founders, investors, and consumers alike.
Conclusion
The ED’s 2025 crackdown marks a turning point for India’s startup ecosystem. From Probo and Myntra to Simpl, Paytm, and OctaFX, the agency has demonstrated that high valuations and market visibility do not shield companies from regulatory heat.
As India’s digital economy matures, startups must treat compliance as a strategic priority, not a back-office formality. At the same time, regulators must modernize frameworks to reduce ambiguity and promote genuine business growth. The intersection of innovation and regulation will define the next chapter of India’s startup journey, and 2025 has already set the stage for a more accountable and transparent ecosystem.
Also Read – Founders Who Got Sued by Their Own Employees