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Sebi heads multi-agency probe into black money scam by listed companies

A multi-agency probe is underway into an alleged black money scam by listed companies that could run as high as Rs 20,000 crore. The investigation is being spearheaded by the Securities and Exchange Board of India (Sebi), income tax department and the Special Investigative Team (SIT) on black money, people familiar with the development said.

The markets regulator is examining the role of over 100 companies for allegedly misusing the exchange platform for money laundering and evading taxes, the sources said, on condition of anonymity. 

In the near term, the said, Sebi may pass an order against 25 such companies. Considering the number of companies involved, regulatory forces are pegging the quantum of the scam close to Rs 20,000 crore. 

At a recent conference, Revenue Secretary Shaktikanta Das had, while making a reference to black money, directed attention towards domestic unaccounted money.

“The quantum of domestic black money is equal to the money stashed abroad,” he said. 

The SIT on black money has already taken the case on record. 

“We had received a reference from the income tax department that the promoters of certain low value listed companies are using the stock exchange platform to get an advantage of Long Term Capital Gains (LTCG) and evade taxes. The probe is currently underway against some companies,” said a source familiar with the matter.

The modus operandi in this case is similar to the one observed in the case of Radford Global and First Financial Services. 

In an order passed last week, Sebi whole time member Rajeev Kumar Agarwal had barred 260 market entities including two companies, their promoters, brokers and a clutch of investors, from accessing the securities markets. 

The regulator has accused them of misusing the stock exchanges to generate long-term capital gains of around Rs 485 crore, thus converting unaccounted cash into legitimate money.

As per initial investigations by Sebi, these 100 companies “exist only on paper” and are using the exchange platform for converting “black money to white”. These companies were eligible for LTCG on any gains made on sale of shares issued through preferential route due to the clause of compulsory lock-in of one year on such shares. 

The regulatory probe is determining the roles of traders and operators that acted in concert with the promoters to artificially rig volumes and prices. 

Another area of investigation that the regulator is focusing on is to determine whether the funds infused into the companies by way of preferential allotment was utilised for purposes other than those disclosed and did money for purchase of shares pass through a number of entities before being used to buy shares. 

“Probe is underway to verify whether these companies and related entities carried out trading among themselves to manipulate the share price, before and after the preferential allotment,” one of the sources told Business Standard. 

In its order dated December 20,, Sebi had noted that the promoters of the two companies had malafide intent

“The modus operandi of allotting shares on preferential basis at a premium, pumping the share price artificially and then dumping the price so that the same cycle could be repeated, demonstrates the malafide of the Radford Group & Suspected Entities. Also the mechanism is being presumably used to deceive the authorities by laundering black money and raking in tax-free profits,” said Agarwal. 

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