Sebi bans Valecha Engg, 13 others for fraud trade

Sebi has imposed a ban of up to 3 years on Valecha Engineering and 13 other entities from capital markets for indulging in fraudulent trading.
The markets watchdog found fraud in preferential allotment of convertible warrants of Valecha Engineering Ltd (VEL) to some entities during 2005. It also charged other entities of no-genuine and fraud trade in the scrips of the company.
VEL had made preferential allotment of 14,23,900 convertible warrants, which were to be converted into equity shares at a later date to certain entities. VEL and all preferential allottees are connected with each other.
However, preferential allottees did not pay the full consideration for the allotment of such warrants and VEL allotted such securities to the allottees without getting actual consideration for that and as such was sham.

"...Being the MD of VEL and having active role in its preferential allotment, Jagdish Valecha is liable for the acts of VEL with regard to the preferential allotment. The preferential allottees and other notices who acted in concert and in league with VEL and Valecha in the whole scheme of fraudulent preferential allotment are also equally responsible for such fraudulent acts," Sebi said in an order.
According to Sebi, some of the entities executed sham transactions in the scrip of VEL thereby creating artificial volumes in the company's shares.

Some others have allegedly indulged in financing transactions and executed sham transactions with the funds received from VEL thereby creating artificial volumes in the company's shares.

Other entities had indulged in "non-genuine, fraudulent, and illegal trading" to crate false appearance of trading but did not involve in the preferential allotment.
By indulging in such activities, these entities have violated provisions of PFTUP (Prohibition of Fraudulent and Unfair Trade Practices) regulations.
Accordingly, Sebi has restrained all the 14 entities "from raising capital from public and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, in any manner..."
While, a ban of three years have been imposed on seven entities, three entities are banned for two years and the rest for one year.

It further said that the shares of VEL allotted during the preferential allotment and lying in the demat accounts of the allottees will remain frozen.
It also directed VEL not transfer any shares acquired and held by the allottees in that preferential allotment.
It also restrained the preferential allottees from exercising any voting or other rights attached to the shares acquired and held by them in that preferential allotment.