The Securities and Exchange Board of India (SEBI) has taken strict action against a listed company and its promoters after uncovering massive fraud in financial data and balance sheets in the stock market. SEBI’s detailed investigation revealed that in order to mislead investors and the market, the company had created a fake loan portfolio of about Rs 1,000 crore by repeatedly round-tripping the original capital of only Rs 25 crore to the accounts of related entities. The purpose of such financial manipulation was to make the company’s balance sheet appear stronger and artificially inflate share prices.
Shocking game of rotating only Rs 25 crore 34 times The regulator’s forensic and financial investigation revealed that the company had created a well-planned ‘circular routing’ network for financial misappropriation. In this, the original Rs 25 crore of the company was transferred to the bank accounts of several shell and associated companies on the same day or continuously within a few days. This process was repeated approximately 34 times. On paper, each transfer was recorded as a new loan disbursement and repayment of the old loan. This led to the company’s financial books ballooning to a total loan book size of more than Rs 1,000 crore, even though in reality no new funds or actual borrowers existed.
Shares were manipulated by showing the shine of the balance sheet Through this fake loan growth, the company presented itself as a fast growing financial company. The financial results largely presented a false picture of revenue, interest income and asset growth, thereby attracting common retail investors to buy shares of the company. Promoters and their associated operators took advantage of this artificial boom by selling their shares at high prices and earning illegal profits. SEBI has termed this as a flagrant violation of the Prevention of Fraudulent and Unfair Trade Practices (PFUTP) rules.
SEBI takes strict action against company and promoters After the scam was confirmed, SEBI passed an interim order and imposed stringent restrictions on the concerned company, its promoters and Key Managerial Officers (KMPs). SEBI has banned all of them from trading directly or indirectly in the securities market. Additionally, a detailed forensic audit of the company’s bank accounts has been ordered and the process to seize illegal gains earned through financial fraud has also been initiated. The regulator has made it clear that any institution playing with market transparency and investors’ interests will not be spared.