BackSharepro scam: EOW and Sebi widen probe to all 135 RTAs
A Sebi probe has shown that Sharepro defrauded 10 firms of an estimated `22 crore
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Mumbai: On 23 March, capital market regulator Securities and Exchange Board of India (Sebi) slapped an interim ban on Sharepro Services (India) Pvt. Ltd— one of the country’s largest share transfer agents.
A Sebi investigation had shown that Sharepro defrauded at least 10 companies, including Britannia Industries Ltd, Asian Paints Ltd and Aptech Ltd, of an estimated ₹ 22 crore.
It now appears that Sharepro was not the only share transfer agent that was indulging in malpractices.
In the process of investigating the alleged scam at Sharepro, Economic Offences Wing (EOW) of the Mumbai Police has uncovered a wider racket in the share conversion business, said two senior police officials who did not want to be named.
The total amount involved in the scam could be more than ₹ 30 crore, these officials added.
The regulator has taken cognizance of the matter and widened its probe to all 135 registrar and transfer agents (RTAs), said a third person familiar with the regulator’s thinking.
As per the Central Depository Services Ltd, there are 135 registered RTAs in India.
“Sebi has received information about the alleged scale of the scam and it has started an independent probe into all the registrars, to verify whether fraudulent share conversion is happening at other registrars too," said the third person, on condition of anonymity.
An email sent to the regulator on Thursday remained unanswered.
According to one of the police officials cited above, the alleged scam involves the conversion of physical shares into dematerialized form.
“It is a physical share certificate conversion scam where the companies are being defrauded by a nexus of third-party agents and some officials of RTAs. The scam has been traced to Mumbai, Ahmedabad and Kolkata, and raids are being conducted," said the police official.
The modus operandi of these agents involves buying physical share certificates from investors at a discount. The agents who buy these share certificates then file police complaint saying they have lost the certificates. This complaint is shared with the RTA which, in turn, asks companies to issue fresh share certificates, explained the second official quoted earlier.
“As per initial findings, these agents could have defrauded at least eight firms," he added.
These third-party agents are also on the lookout for investors who have not traded their shares for six years to gain access to uncollected dividends which, as per regulations, get transferred to the Investor Education and Protection Fund (IEPF) if they are not claimed for seven years, said the first police official.
As per Section 205C of the Companies Act, 2013, dividends that remain unclaimed for a period of seven years are to be transferred to IEPF and cannot be claimed after such a transfer.
Under the provisions of the Depositories Act, 1996, non-promoter investors have the option to hold securities either in physical or dematerialized formats.
In 2011, Sebi asked all promoter shareholders to convert to convert their holdings to the demat form. While it is not compulsory, most retail investors have also moved to the demat format.
As of March 2016, 97.60% of the total traded shares were in demat form.
“The investigative agencies should verify whether sensitive data of unclaimed dividends and shares has been leaked by any agency to these fraudsters. If that is the case then the scam could be a larger systemic issue," said J.N. Gupta, founder, Stockholder Empowerment Services, a proxy advisory firm.
To be sure, the alleged scam being investigated by EoW and Sebi now is different from one unearthed at Sharepro in March.
In the case of Sharepro, funds to the tune of ₹ 21.7 crore were transferred to the accounts of relatives of senior management and unauthorized entities over a period of 10 years. Investigations prima facie highlighted falsification of records, forgery, repeated printing of new certificates without any request or authorization from the shareholder and irregular transfer transactions.
Sebi, while banning the transfer agent, also directed the companies availing of its services to switch their transfer agent and conduct audit of records related to Sharepro dating back to at least 10 years.
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