Sebi cracks whip on 33 entities and suspended trading in Kamalakshi Finance Corp in R1,800-cr market manipulation and tax evasion case

Sebi cracks whip on 33 entities in R1,800-cr tax evasion case

21 February 2015

Indian Express

In a major crackdown against market manipulation and tax evasion, the Securities and Exchange Board of India (Sebi) on Friday suspended trading in Kamalakshi Finance Corp (KFCL) and imposed trading restrictions on 33 entities for making undue gains of over Rs 1,800 crore. </p><p>While 24 entities have been barred from the capital market, nine others have been restrained from trading in the shares of Kamalakshi Finance.The regulator has suspended trading in 27 companies so far in such cases, wherein the manipulators are estimated to have made cumulative undue gains of about Rs 2,500 crore. </p><p>In the latest case, Sebi found that the entities used the preferential share route through Kamalakshi and their trades resulted into artificial increase in its price. “Thus, these group of entities prima facie manipulated the price of the scrip during the examination period (January 15, 2014 to December 26, 2014),” Sebi said in an order.The modus operandi involves preferential allotment of shares to entities wanting to launder black money. Later, the share prices of the companies, in which allotment is made, are artificially inflated and the preferential allotees are provided an exit whereby they took fictious long term capital gains (LTCG), which doesn’t attract tax. </p><p>[related-post] </p><p>“It can reasonably be inferred that the preferential allottees acting in concert with KFCL are making an attempt to generate fictitious LTCG through the stock exchange system. I, prima facie, find that the above modus operandi may help the concerned entities to pay a lower rate of tax on account of LTCG and may help them to show the source of this income to be from legitimate source i.e. stock market,” Sebi whole-time member Rajeev Kumar Agarwal said in the order. </p><p>The market regulator noted that entities had “the intention of using securities market system to artificially increase volume and price of the scrip for creating bogus non taxable profits”. </p><p>Sebi had conducted a preliminary inquiry in the dealings in the scrip of the firm during January 15 to December 26, 2014. It was noticed the price of the scrip rose from Rs 10.20 to Rs 489 an increase of 4,694 per cent (48 times) in 150 trading days.


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