Sebi suspects money laundering, tax evasion: Bars 260 entities

Mumbai: In its biggest ever crackdown for suspected tax evasion and laundering of black money through
stock trading platforms, Sebi today barred 260 entities, including individuals and companies, from the securities markets.

While Sebi would further probe these cases, it has also decided to refer the matter to the Income Tax Department, Enforcement Directorate, Financial Intelligence Unit, among other agencies, for necessary actions on their part.

Through two separate interim orders, Sebi said that these 260 entities would be restrained from accessing the securities market and from buying, selling or dealing in securities, either directly or indirectly, with immediate effect till further directions.

It has also asked stock exchanges and the depositories to ensure that all its directions are strictly enforced.

While 152 entities have been barred in one case relating to an entity named First Financial Services Ltd, another 108 entities have faced the action in a case related to Radford Global Limited.

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The action comes at a time when the government has sharpened its focus on unearthing black money stashed abroad and within the country, while Sebi also recently tightened its surveillance of shell companies created solely for the purpose of tax evasion or money laundering activities.

In the first case, the suspected dealings took place on the stock market for almost two years till 31 March 2014, while the second case relates to a period of little more than a year starting January 2013.

In its orders, Sebi said that the modus operandi of the barred entities typically involved stock market dealings aimed at evading long-term capital gains tax and showing the source of income as legitimate from stock markets.

“… the schemes, plan, device and artifice employed in this case, apart from being a possible case of money laundering or tax evasion which could be seen by the concerned law enforcement agencies separately, is prima facie also a fraud in the securities market in as much as it involves manipulative transactions in securities and misuse of the securities market,” the regulator said.

In the First Financial case, the debarred entities include this company itself, its seven promoters and directors, 80 ‘preferential allottees’, 57 First Financial Group entities, as also seven others suspected to be related entities.

With regard to Radford case, Sebi has barred the company, four directors, one promoter entity, two directors of a group firm, 49 preferential allottees, 39 Radford Group entities, five ‘suspected entities’ and seven others.

Sebi found a typical pattern in trading of shares of these companies. First shares were 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.

While overall gains made by all 260 entities could not be ascertained, a batch of 46 allottees in Radford case made a collective profit of Rs 313.01 crore on a total investment of just Rs 12.99 crore, thus getting a return of 2309 percent in
a period of 18 months.

In the First Financial shares, a batch of 80 allottees made a collective profit of Rs 172.21 crore on a total investment of Rs 14.50 crore, earning a whopping return of approximately 1087 per cent in a period of 20-24 months, Sebi said.

Such huge profits were made in stocks where fundamentals or financials of the companies did not justify the price, the
regulator observed.

“The manipulation in the traded volume and price of the scrip by a group of connected entities has the potential to induce gullible and genuine investors to trade in the scrip and harm them,” Sebi said.

The capital markets regulator further said that a “detailed investigation of the entire scheme employed in these cases was necessary to find out the role of any other entity therein, connection amongst the concerned entities and the ultimate owners of funds used for manipulating the price of the scrips.

“Therefore, while Sebi would investigate into the probable violations of the securities laws, the matter may also be referred to other law enforcement agencies such as Income Tax Department, Enforcement Directorate and Financial Intelligence Unit for necessary action at their end as may be deemed appropriate by them,” it said.

PTI