Penny stocks and how Sebi turns a blind eye

An article in MoneyLife has profiles of a few penny stocks, which helped manipulators make a quick buck at the cost of ignorant investors as the regulator and stock exchanges adopt a “see no evil, hear no evil and speak no evil” stance.

The stock that tops the list is Prism Informatics, which surged a nonsensical 29348 percent in a short span of two years, from Rs 0.29 (or just 29 paise) on 15 September to Rs 85.4 on 22 September. The stock has fallen 63 percent, the report says.

And the stock traded only for 42 percent of total trading days since 2007.

“At one point during the price rise, operating profit was at a fixed Rs 4 lakh in each quarter,” the report says.

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Indian Infotech and Software shares rose 2778% between 25 March 2011 and 12 June 2012, even as the company recorded “losses in three of the past four quarters and almost zero revenues in two quarters”.

Even interesting is the case of Out of City Travel Solutions, which reported zero profit in June 2011. Shares of the company rose 2268 percent-from Rs 2.20 in July 2010 to Rs 52.10 in January 2012.

Girraj Kishor Agrawal, a director of the company, is director on a dozen more unheard of firms.

Some of these companies even have their offices in the same building too.

These are just a few examples.

Maximum manipulation happens in the smaller stocks, most of which are listed on the BSE. Meanwhile, the game on the NSE is a bigger one - it is “in the way stocks for the futures & options (F&O) are selected and then driven up and down through false information, rumours and the like”, the article says.

“Rampant price manipulation and poor grievance redress system that inflicts losses on investors which also shatters their confidence in the fairness of the system” is a key reason for investors shunning the market, the article argues.

Read the full report here.