Sebi bars Pyramid for 7 years

Regulator charges the firm with allotting employee quota shares to others.

The Securities Exchange Board of India (Sebi) today barred Chennai-based Pyramid Saimira Theatre Ltd (PSTL) from the stock market for seven years.

The order came after Sebi investigated allotment of the company’s shares reserved for employees in its December 2006 initial public offer (IPO). Sebi said the company reserved 422,200 shares for its employees but allotted 98.5 per cent of these to seven people who were not its employees.

“There is no evidence of employment in terms of attendance and payment of salary and provident fund in respect of these seven persons. They could not have become employees given their qualification and experience,” Sebi said in a note.

The regulator said PSTL aided and abetted the alleged fraud to the detriment of common investors.

The seven people who joined as “employees” in July-August 2006 resigned in quick succession in late December 2006 and early January 2007, immediately after the close of the issue/allotment of shares. All of them gave up their textile businesses to take up jobs for less than six months and synchronised their entry and exit with the IPO period, said Sebi.

In collusion with the company, these people became employees for four to six months, got the shares and sold them soon after they were listed, making an unlawful gain of Rs 2.31 crore, said Sebi.

The IPO was subscribed 15.5 times in the retail category, 28.09 times in the high net worth individual category, 17.18 times in the qualified institutional buyer category and only 0.015 times in the employee category (excluding the applications by these seven people).

If it was not for these seven people, there would have been a shortfall in subscription in the employee category, whose shares would have gone to applicants in other categories, it was alleged.

The regulator said the company violated the regulations of Prohibition of Fraudulent and Unfair Practices Relating to Securities Market and the action was necessary to protect the interest of investors and the integrity of the securities market.

PSTL said it would take legal recourse against the order, which it added was one-sided.

P Saminathan, chairman, PSTL said the order was clearly one-sided. Sebi itself said that it had not established sharing of spoils and had itself given consent to the company for allotting the shares to these seven employees, he said.

“We will take appropriate legal action against the market regulator,” said Saminathan.