Going after the rogues

2 August 2015

Business Today

It is not often that one hears about 239 entities and individuals being barred from a stock exchange by the regulator. But this is exactly what the Securities and Exchange Board of India, or SEBI, did on June 29 after its probe found that the Bombay Stock Exchange’s (BSE) SME platform was being used to turn unaccounted money into legitimate market gains. The banned entities include four companies at the centre of the alleged fraud – Eco Friendly Food Processing Park, Esteem Bio Organic Food Processing, Channel Nine Entertainment (CNE) and HPC Biosciences. The others include those that were allotted shares by these companies in preferential allotment and pre-IPO placements, and those that funded the purchase of such shares.

“The scam will hit the confidence of investors in the exchange, impacting the ability of SMEs to raise funds,” says Jay Parikh, Partner, Shardul Amarchand Mangaldas, a law firm. SMEs employ 40 per cent of India’s workforce and contribute 45 per cent to its manufacturing output. Continue reading →

BSE pitches for long-term capital gains tax to check manipulation

Tanya Thomas

17 July 2015

Business Line (The Hindu)

The BSE has written to the Ministry of Finance suggesting that long-term capital gains on stocks must be taxed to avoid the stock markets being used as a tax avoidance route. In June, capital markets regulator SEBI had barred 239 individuals and entities from accessing the securities market for using the BSE’s SME platform to launder money and avoid taxes. The regulator came down on four companies listed on the SME platform — Esteem Bio Organic Food Processing, Eco Friendly Food Processing Park, Channel Nine Entertainment and HPC Biosciences — when it noticed a sharp rise in the stocks’ prices even as the companies’ profits and earnings per share declined. Between January 1, 2013, and December 31, 2014, the share prices of Eco shot up by a whopping 6,265 per cent, Esteem by 3,150 per cent, CNE by 2,882 per cent, and HPC by 1,782 per cent.

Making use of norm

According to SEBI’s order, the companies made preferential allotment to certain entities to raise funds, sometimes to benami entities close to the promoters of the companies, and the stock prices were manipulated. Since capital gains from stocks held for over 12 months are not taxable, once the one-year period was over, these entities sold their stocks at higher prices. Continue reading →