Sebi fines many over IPO fraud

Mumbai: Markets regulator Sebi has slapped a monetary penalty of Rs 17.55 crore on 22 entities including a few individuals for committing fraudulent transactions in the initial public offer of Brooks Laboratories Ltd (BLL) including ‘round tripping’ and siphoning off the IPO proceeds with the active connivance of promoters. 

“Noticees No 1 – 5 (Konark Commercial & Industries Ltd, Shardaraj Tradefin, Suryamukhi Projects, Blue Print Securities and Sunshine Housecon Ltd) have fraudulently acted as layers or conduits in collusion with the promoters of BLL for the purpose of round tripping of funds to the tune of '8 crores in the guise of inter corporate deposits (ICD), which were subsequently paid back to the above entities from the IPO proceeds of BLL,” Sebi said in its 34 page order adding that seven individuals named in the show cause notices were common directors on the board of many companies mentioned above. 

The company came out with its IPO in September 2011 to raise '63 crore from the primary market. On observing certain irregularities and fraudulent activities, Sebi passed an interim order against the company and its promoters in December 2011 and passed a final order in December 2013. 

Setting aside the Sebi order in 2015, the Securities and Appellate Tribunal (SAT) directed the adjudicating officer to hear and adjudicate the matter afresh.

The regulator noted that such fraudulent practices or mechanism for siphoning off funds from IPO proceeds, round tripping and creating false liability in the form of ICDs, misutilisation and diversion of IPO proceeds and concealment of material information could influence the decision of investors while making investment in the IPO. 

“The noticees have acted in a concerted manner in inflicting a fraud on the unsuspecting or gullible investors of BLL, who have fallen prey to the fraudulent acts committed by the noticees along with BLL,” the regulator said.