SEBI Enhances vigil for Money laundering through Stock market

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NEW DELHI: To check laundering of black money through stock market platform, regulator has enhanced its vigil for the entities engaged in such illicit trades and has suggested further probe by other agencies in this regard.

The Securities and Exchange Board of India (Sebi) has found hundreds of entities to have devised such unauthorised schemes to launder black money and evade taxes and is currently probing many other such cases.

While Sebi has taken interim action against these entities by barring them from the markets, it has also suggested further probe by other agencies for tax evasion and other irregularities, a senior official said.

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In its meeting last week, Sebi’s board was apprised of the surveillance action taken in this regard, which included interim orders passed in two such cases involving illicit tax-free gains running into hundreds of crores of rupees.

In the first order, Sebi barred Mishka Finance, its 6 promoters, 4 directors and 170 other entities from accessing securities market and prohibited them from buying, selling or dealing in securities till further directions.

Sebi had suo motu carried an examination after noticing an exorbitant rise in trading volume and share price of Mishka. It was found that the company along with its promoters and directors issued new shares through preferential allotment to certain entities.

Further, the promoters transferred their holding in physical form to related entities, while price of the scrip increased astronomically despite low volumes.

One month after share split, the preferential allottees and promoter related entities started selling the shares to entities related to Mishka, thereby making huge profits.

“It appears that the stock market mechanism was used by the company, its promoters and related entities for booking Long-Term Capital Gains of Rs 254 crore approximately and converting their unaccounted income into accounted one”

“These connected entities are offloading these shares by indulging in trading in an artificial, manipulative and unfair manner” Sebi said.

In the second case, Sebi restrained Pine Animation group, their promoters and related entities, their directors along with their preferential allottee and exit providers (total of 178 entities) from markets till further directions.

Sebi said the typical modus operandi of allotting shares on a preferential basis, announcing a stock split and then bringing in connected entities to provide exit was a scheme devised to make ill-gotten gains.It included pumping the share price artificially and then dumping the price so that the same cycle could be repeated.

“Also the mechanism is presumably being used to deceive the authorities by laundering black money and making tax-free profits. Further, the order mentions that the issue requires further investigation from the forensic angle” Sebi said

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