BSE tightens noose on auditors in 'preferential' manipulations

BSE said there has been substantial increase in manipulation/abrupt movement in the prices of securities wherein common modus operandi is through preferential allotment

Tightening its surveillance mechanism to check share price manipulations, top stock exchange BSE has decided to follow a stricter process to scrutinise the auditor certificates provided by listed firms regarding their preferential allotment of shares.

In case of any discrepancies observed in the auditor certificates, the same shall be viewed seriously, including referring of the case to auditing regulator ICAI, BSE said in a new circular to its trading members.

The markets regulator Sebi in the past has passed several orders against the persons and companies concerned in relation to unusual price movements vis-a-vis preferential issue price and weak financials of the company.

Besides, BSE has also suspended trading in shares of various companies on account of surveillance reasons.

In its circular, BSE said it has been noticed that there has been substantial increase in manipulation/abrupt movement in the prices of securities wherein common modus operandi is through the route of preferential allotment.

"While the Exchange, from time to time, has taken requisite steps to detect and contain such instances, it is felt necessary that further pre-emptive measures should be adopted to curtail misuse of the Exchange's system," BSE said.

BSE said it will continue to adopt various surveillance measures such as reduction in price band and suspension in the trading of securities while a new process would be adopted for suspension and revocation of such companies.

Under the new mechanism, trading in the securities of such companies will be suspended till such time the company submits the auditor certificate confirming compliance with regard to the preferential issue made by the companies.

The auditor would need to certify the amount raised under each of the preferential issue, object of the fund-raising and the benefits to the company from the issue. Besides, the auditor would need to certify there was no mis-utilisation of funds and the same needs to be supported by bank statements.

The auditor also needs to certify that the money raised has not been transferred back to the preferential allottees, promoters or directors, directly or indirectly, BSE said.

The exchange further said the auditor certificate needs to be duly supported by relevant documents.

BSE would verify the documents, including the board resolution, notice to shareholders and the resolution passed by them, list of allottees, the auditor certificate and its supporting documents as also the bank statements indicating receipt and utilisation of funds.

The exchange further said, "In certain instances, it has been observed that certificate issued by the auditor consisted of bald statements with regard to issues mentioned in the aforesaid exchange notices without any supporting documents and adequate cross-reference therein.

"In view of the same, in order to smoothen the process of verifying the completeness of documents, it is once again clarified that the certificate issued by the auditor should contain adequate reasons backed by supporting documents with proper cross-reference..."

After receipt of complete documents, BSE would place the matter before its Auditors Committee to ascertain the veracity of reasons given by the company in fulfilment of conditions for revocation of suspension.

Wherever required, company officials and the certifying auditors would be called for personal hearing before the committee for providing submissions and clarifications.