Posted by LAM Xin Hui, Year 4 undergrad at the School of Accountancy, Singapore Management University
The Times of India
Feb 21, 2015, 12.35AM IST
NEW DELHI: The Securities & Exchange Board of India (Sebi) on Friday banned trading in little-known Kamalakshi Finance, while imposing restrictions on 33 entities, for what it believes was price manipulation of the order of Rs 1,700 crore, making it the 27th company where trading has been suspended. The move is part of Sebi’s efforts to check possible misuse of stock market trades to ramp up prices of shares allotted through preferential allotment. In his latest order issued on Friday, Sebimember Rajeev Kumar Agarwal has sought a detailed investigation by the regulator for probable violation of securities laws, while asking the income tax department for necessary action. While 24 entities have been barred from the entire capital markets, nine others have been restrained from trading in shares of Kamalakshi Finance.
Agarwal’s order pointed out that during 150 trading days between January 15, 2014 and December 26, the company’s share price shot up 48 times from Rs 10.2 to Rs 489. This happened when only 1,385 shares were traded against 2.8 crore subscribed shares, pointing to possible manipulation by jacking up the last trading price, every time the scrip was traded.
Sebi said during the period, there was no “material corporate announcement” to support the massive jump in share price. It pointed out that despite its weak fundamentals, Kamalakshi garnered Rs 42 crore from 137 entities, which it said “cannot prima facie be termed as a rational investment behaviour”.
“Such investments, as in this case, normally could be made if allottees had a nexus withKamalakshi Finance and its directors/promoters and the issue of these shares was under a prior arrangement between them,” the order noted.
Sebi found links between Kamalakshi and Moryo, against which it had passed an interim order in December.
As reported by TOI on December 22, Sebi has launched a drive to check against possible manipulation of share price for tax evasion and money laundering and at least 50 companies had been put under the scanner. In several cases, it believes trades are taking place in “paper companies” and has launched physical verification drive to find out if the companies actually exist.
Sources had earlier said that the companies under the scanner usually have very weak finances but have seen sharp price increases. Typically, in these companies preferential allotment has been done and those who are involved in the manipulation exercise have exited after 14-15 months to avoid capital gains tax implications.
In Kamalakshi case, the trading ban was imposed in what Sebi believes was before the manipulation process would have been completed.