SME IPO scam: PwC calls for 3-yr lock-in for promoters equity

19 July 2015

Press Trust of India

Mumbai, Jul 19 (PTI) Amid Sebi banning as many as 239 entities for alleged money laundering, taxation consultancy PwC has called for a three-year locking-in for the entire pre-listing capital held by promoters to curb tax evasion and other illegal activities through market platforms. The agency has called for imposing a similar lock-in even for preferential allotments, as prescribed under the capital and disclosure requirement (ICDR) norms so that only serious investors access the market. The PwC report is part of a BSE-mandated review of SME listing process. Continue reading →

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 →

Related post: Does Auditor Explanatory Language in Unqualified Audit Reports Indicate Increased Financial Misstatement Risk? “Emphasis of matter” language predicts restatements

Qualified opinions due to business complexity

By Yen Ne Foo

6 July 2015

The Edge Malaysia (Weekly)

A number of Bursa Malaysia-listed companies with small market capitalisation, including those with prominent shareholders like self-made tycoon Tan Sri Vincent Tan and businessman Datuk Tey Por Yee, saw their FY2014 financial accounts slapped with a “qualified” opinion by external auditors. Are financial shenanigans on the rise or have auditors turned more cautious following an explosion of mega financial fraud in recent years? Former stock market darling Transmile Group Bhd, whose investors include billionaire Tan Sri Robert Kuok, comes to mind. Continue reading →

http://www.outlookindia.com/article/a-252cr-guarantee-to-a-firm-worth-less-than-25-cr/294787

A 252-Cr Guarantee To A Firm Worth Less Than 2.5 Cr…

Meetu Jain

13 July 2015

Outlook (India)

The PAC on the 4G auction in 2010 is to take up the final CAG report. Will Reliance Jio get mired in the alleged collusion scandal in pan-India licences? When contacted, Reliance Jio says, “We have acquired all our spectrum at market prices through open and transparent bidding processes, the conditions for which were the same for all bidders.” But clearly, the last hasn’t been heard of this watered-down report. It remains to be seen what line the PAC, headed by Congress MP K.V. Thomas, takes. Will the BJP government take its so-called cold war with Mukesh Ambani to its logical conclusion? The second point raised by CAG made it to the final report. This was how the rules of the game were changed three years after the auction. As other telcos watched, voice services were suddenly allowed to be bundled on the same frequencies for those holding broadband wireless access (BWA) spectrum. In short, from being an internet service provider, Reliance Jio now became a full service provider. Moreover, this spectrum was given at 2001 rates in 2010. At least at this stage it seems DoT cannot be charged with collusion or dereliction. In response to a PIL, solicitor-general Ranjit Kumar had given an opinion for DoT: “No occasion can therefore be said to have arisen for DoT to inquire into the transaction between IBSPL and RIL unless there was any complaint/material with DoT to indicate their collusion….” When contacted, Axis Bank issued a bald statement “that all credit decisions were taken after due appraisal keeping in mind all aspects, including that of security”. According to sources, the Rs 252-crore guarantee was backed up against the existing limit of another client with AAA ratings—that’s why the change of name was done manually.

It raised red flags as to how Infotel—a company with a net worth of Rs 2.4 crore—could get a bank guarantee of Rs 252 crore without giving a security deposit. What nobody has yet been able to explain is why and how the Rs 252-crore bank guarantee cheque issued by Axis Bank, Mumbai, was tampered with. And who deleted the computer-printed name on the cheque in favour of a handwritten one. Continue reading →