Sebi Probes Money Laundering At Cos – Times of India – 22-Dec-2014

December 27, 2014 - Uncategorized

Over 50 companies are being investigated by the Securities & Exchange Board of India (Sebi) for what the market regulator suspects are activities aimed at money laundering and tax evasion in unheard of shares, which have seen sharp price spikes in recent months.

Already, Sebi whole-time member Rajeev Agarwal has passed orders involving four-five companies where 350-400 entities have been found to have violated rules and several have been banned from accessing the market. Given that a sum of Rs 625 crore is involved in case of just three companies, the overall scam could run into thousands of crores.

The scale of the crackdown is going to be much bigger and comes at a time when the Supreme Court has set up a Special Investigation Team to track black money and the revenue department has acknowledged that illicit wealth within the country is a big concern although the political debate has focused on funds stashed abroad.

For long, stock markets have been seen to be major sources of laundering and the regulator had failed to act against wrongdoers. In his two orders on Friday, Agarwal has alluded to the possibility of money laundering or tax evasion and suggested that the income tax department, enforcement directorate and the financial intelligence unit should probe it further.

A tax department official said the issue of preferential allotment is already being looked at and is one of the parameters under scrutiny.

Sources told TOI that the companies, which are essentially “paper companies” with very weak finances but showed sharp price increases, are under the lens. Typically, in these companies preferential allotment was done and those involved in the manipulation exercise exited after 14-15 months to avoid capital gains tax implications.

Several companies in which trading had been suspended but saw sharp price jumps in recent months are also under the scanner.

Sources said Sebi is going to the extent of conducting physical checks at the offices of some of the companies that it is investigating.

Usually, preferential allotment was done at a little premium. So, for a share with a face value of Rs 10, the allotment would be done at Rs 15 a share and an investor would pay, say, Rs 1.5 lakh for 10,000 shares. Around 15 months later, when the share traded at around Rs 150, the investor exited, pocketing a gain and paying a commission of 7-8% to some entities related to the promoter, who helped ramp up the prices.

Since there is multi-layering of transactions, Sebi is said to be taking time in completing the investigations.

 

Times of India

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