Mumbai: Last week’s interim order by the stock market regulator, the Securities and Exchange Board of India (Sebi), barring Pyramid Saimira Theatres Ltd promoter Nirmal Kotecha and 229 other entities from trading in the market for alleged securities fraud may have just scratched the surface.
Sebi is working to unravel what may not be merely a stock-specific scam, but a financial one, according to people familiar with the development who didn’t want to be named.
The 23 April order by the regulator said Kotecha had masterminded the forgery of a Sebi letter ordering directors of Pyramid Saimira, which runs a chain of theatres, to make an open offer to shareholders. Sebi investigations showed the forgery was aimed at manipulating the company’s share price, it said.
Forex violation: Sebi headquarters in Mumbai. The regulator is widening the scope of its probe into Pyramid Saimira’s promoters. Abhijit Bhatlekar / Mint
Sebi barred 230 persons and entities from trading, and according to people familiar with the development, many more may be under the regulator’s scanner. Sebi suspects that Kotecha used several front companies to trade in various stocks, and that there are indications of massive fund rotation among these front entities, the people said.
Sebi is investigating all the transactions after also unearthing huge cash transactions through several banks, the people said. Sebi has sent the investigation reports to the Reserve Bank of India to look into the alleged violation of banking rules.
The investigation reports have also been passed on to the financial intelligence unit, the income-tax department and the Mumbai police because money laundering is also suspected. The reason: 43 of the 230 entities in the Sebi interim order belong to the gems and jewellery sector, and 63 of the entities are involved in import-export operations.
The authorities are probing to see if these entities had genuine businesses, and if funds flew in and out of the country, the people said.
Two of the companies named in Sebi’s interim order—Usher Agro Ltd and SEL Manufacturing Ltd—have already come under the regulator’s scanner.
The interim order alleges that Kotecha was in constant touch with Pandoo Prabhakar Naig, an independent director of Usher Agro, and Neeraj Saluja, managing director of SEL Manufacturing.
It also alleges that Kotecha traded in the stocks of these two companies through a demat account registered to Amol Konkane, a student related to one of the employees of Kotecha Capital Services.
Sebi also says in its order that Konkane’s demat account showed that between September and November, he made a profit of Rs4.66 lakh by trading in shares of Usher Agro.
In the same period, Konkane also gained Rs8.46 lakh by trading in the SEL Manufacturing stock.