NEW DELHI, Feb 8 (PTI): Cracking its whip on entities using stock markets for evading taxes and laundering black money, watchdog Sebi has decided to suspend trading in listed companies that are found to be used by such manipulators.
The capital markets regulator has identified three parameters for taking action against such companies and the trading would be suspended in the shares of those entities that satisfies more than one of the criteria.
"These parameters include these companies being non-existent on their mentioned address, misuse of preferential allotment and weak fundamentals not supporting price rise," a senior official said.
In its probe into various such cases, Sebi found huge share price rally in shares of the companies that existed only on paper and did not even exist on the addresses mentioned in their regulatory filings, while preferential allotment has emerged as a major route for laundering of illicit funds.
The modus operandi typically involves stock market dealings aimed at evading capital gains tax and showing the source of income as legitimate from stock markets.
Sebi found a typical pattern in trading of shares of these companies. First, the shares would be allotted on preferential basis to certain connected entities, price would be pushed higher without any fundamental move, followed by an exit being given to these investors and the shares would be sold back to the company or related entities raking in huge profits.
Such huge profits were made in stocks where fundamentals or financials of the companies did not justify the price.
A large number of small NBFCs and brokers are already under Sebi's scanner for having facilitated illicit transactions worth billions of rupees over the past 2-3 years, sources said.
It has emerged during investigations by Sebi and stock exchanges that such illicit activities tend to accelerate during last few months of a fiscal and quantum of such transactions has grown manifold in the last few years.
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