The Securities and Exchange Board of India (Sebi) has now barred the four companies as well as 235 other entities, including many individuals, from the securities market.
Cracking the whip, Sebi on Monday barred four companies and 235 other entities from the securities market for making Rs 614 crore illegal gains through suspected money laundering and tax evasion activities.
The capital market watchdog's order comes after it found manipulations in the scrips of four companies -- Eco Friendly Food Processing Park, Esteem Bio Organic Food Processing, Channel Nine Entertainment and HPC Biosciences.
A huge rise in the traded volumes and prices of these scrips -- during the period from January 1, 2013 to December 31, 2014 -- were noticed after which the regulator initiated a preliminary inquiry.
In his 80-page order, Sebi Whole Time Member Rajeev Kumar Agarwal said the schemes, plan, device and artifice employed the present matter is also a "possible case of money laundering or tax evasion which could be seen by the concerned law enforcement agencies separately".
The manipulation in the traded volume and price of the scrip by a group of connected entities in this case, has not only resulted in enabling illegal benefit to a group of entities but also has potential to induce gullible and genuine investors to trade in the scrip and harm them, Sebi said.
"In the whole process, entities of Trading Group provided a hugely profitable exit to the preferential allottees and pre IPO transferees... Consequently, all the preferential allottees and pre-IPO transferees have collectively made a profit of Rs 614 crore," Sebi said.
The Securities and Exchange Board of India (Sebi) has now barred the four companies as well as 235 other entities, including many individuals, from the securities market.
These entities have been "restrained from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions," Sebi said.
Eco, Esteem and HPC are into the business of cultivation, processing and distribution of agricultural products while Channel Nine Entertainment is into production and distribution of television serials, films and events.
Sebi said that all the companies had very small share capital prior to the year 2011 and later they increased their capital base by issuing shares to several entities by way of preferential allotment and bonus shares.
All the companies came out with IPOs and the entities belonging to 'Funding Group' funded substantial portion of the IPOs and the proceeds of respective companies were immediately routed back to the entities of the 'Funding Group', the order said.
Thus, they financed their own IPO and allotted shares without receipt of consideration to the extent they returned the subscription monies to the Funding Group from IPO proceeds, Sebi noted.
"The respective companies had actively concealed the deviation in utilisation of IPO proceeds as they deliberately did not make any disclosures... Once the shares were listed at the exchange, Trading Group entities started pushing up the price of the scrip through manipulative trades and increased the prices of the scrips astronomically," the order said.
According to the regulator, the Trading Group entities consistently and repeatedly placed buy orders at higher prices than LTP (Last Traded Price) in four fundamentally weak newly listed companies.
"After the expiry of the lock-in period, Trading Group entities further purchased shares from preferential allottees and pre IPO transferees at artificially increased prices," it added.
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