Sebi slaps Rs 18 cr fine on 22 entities for round tripping funds, IPO fraud

Sebi said the actions were serious in nature, having a cascading adverse effect on investors

Markets regulator Sebi on Thursday imposed a penalty of Rs 17.55 crore on 22 entities for round tripping of funds through fictitious transactions and siphoning off proceeds from the initial share sale of Brooks Laboratories Ltd (BLL).

In a 38-page order, the watchdog said the practices adopted by the 22 entities are "serious in nature which have the cascading adverse effect towards the investors/ shareholders" and have inflicted a fraud on them.

After observing certain irregularities pertaining to the IPO of BLL, the regulator had passed an order against the company and its directors back in December 2011.

Investigations found that certain fraudulent exercise were committed by the promoters of BLL in connivance with other entities resulting in siphoning of Rs 8 crore worth funds.

It was also found that BLL's board had passed certain resolutions to raise funds through short term unsecured loans in the form of Inter Corporate Deposits (ICDs).

According to Sebi, it was observed that the promoters of BLL in connivance with the noticees had indulged in fictitious transactions and round tripping of funds and in the process also siphoned of the funds from the IPO proceeds.

Sebi noted that fraudulent practices of siphoning off funds from IPO proceeds, round tripping and creating false liability in the form of ICDs, misutilisation of the proceeds to offset losses suffered by entities in the market and concealment of material information can influence the decision of investors while making investment in the IPO.

"The noticees have acted in a concerted manner in inflicting a fraud on the unsuspecting/ gullible investors of BLL who have fallen prey to the fraudulent acts...," the order said.

Sebi has directed the entities to pay the penalty of Rs 17.55 crore within 45 days of receiving the order.

In 2015, the Securities Appellate Tribunal had set aside the adjudication order in the matter that was passed in December 2013. The tribunal had directed the adjudicating officer to adjudicate the matter afresh.

About Suryamukhi Projects Pvt Ltd, one of the 22 entities, the watchdog said with a malafide and premeditated plan it along with the promoters of BLL had defrauded the IPO investors "by being a significant part in the round tripping of funds and aiding and abetting BLL in such fraudulent activities".

"Clearly, Suryamukhi's role in acting as a layer for round tripping of Rs 8 crore in the guise of ICDs and aiding and abetting BLL in such fraudulent activities with ulterior motive of siphoning the IPO proceeds cannot be ignored and the same has been established beyond doubt," the order said.