The Securities and Exchange Board of India (Sebi) plans to refer cases of irregularities in initial public offerings (IPOs) by some companies to the Enforcement Directorate (ED) and the income tax (I-T) department. While the ED will look into the foreign exchange violations in such transactions, the I-T dept will probe the black money angle in such deals.
In the larger interest of investors the stock market regulator has also decided to review the entire IPO process and look into sudden volatility of stocks on the day of the listing which is believed to be the handiwork of unscrupulous promoters and operators.
The Sebi, which has come across several cases of such violations, has initiated stringent action on such promoters who have been profiteering at the cost of gullible investors by blatantly violating guidelines.
On Wednesday, the Sebi in a swift action barred directors of seven companies from raising money from the public for alleged misuse of IPO proceeds, pricing irregularities, inadequate disclosure of information and rigging the stock prices on listing day.
These include Bhartiya Global Infomedia, PG Electroplast, Taksheel Solutions, Tijaria Polypipes, Brooks Laboratories, RDB Rasayans and Onelife Capital Advisors.
All of these companies had tapped the capital market in the last six months and had raised approximately Rs 450 crore through small issues.
Six investment bankers of these IPOs have also been barred from managing any further share sales for their alleged failure in due diligence related to overseeing the issues. These include PNB Investment Securities, Almondz Global Securities, Chartered Capital & Investment, D&A Financial Services and Alherstone Capital Markets.
Action has been initiated against over 100 entities in possibly the largest crackdown on rogue elements in recent years.
Sebi chairman UK Sinha on Wednesday told journalists that his action would send a message to everybody that they should not be meddling with the rules.
The Sebi has been keeping a close watch on these seven companies and found out that the promoters were misusing the money and thus it took action. More IPOs are under the scanner. The people who are named in the ban order have been given 21 days time to respond to the charges.
Sebi has found out that the promoters have siphoned off IPO proceeds and diverted the funds into stock trading in clear violation of listing norms.
Sebi has also found out that some funds have been transferred through layers of transactions and at least three of the banned companies have placed ICDs with related firms.
The stocks of all the seven firms crashed on Thursday and are expected to witness further selling in the coming days as investors are sure to exit in hoards. Bhartiya Global Infomedia was down 9.89 per cent at Rs 8.47; PG Electroplast down 17.27 per cent at Rs 157.80; Taksheel Solutions down 4.73 per cent at Rs 14.10; Tijaria Polypipes down 4.93 per cent at Rs 9.64; Brooks Laboratories down 9.83 per cent at Rs 13.30; RDB Rasayans down 4.95 per cent at Rs 8.84 and Onelife Capital Advisors was down by 7.75 per cent at Rs 224.25. This crackdown may be the tip of the iceberg and more bad fish are expected to be fished out soon said analysts.