Sebi widens share conversion scam probe; hundreds under scanner

Market regulator believes several listed blue-chip companies said to have been defrauded by a syndicate with the help of some registered entities

Expanding its probe into an alleged large-scale scam in conversion of physical shares into demat format, markets watchdog Sebi has decided to conduct a detailed forensic audit of the books of Sharepro and some other registrars and share transfer agents.

Sebi suspects hundreds of individuals and market entities to be involved in the case wherein several listed blue-chip companies are said to have been defrauded by a syndicate with the help of some registered entities, a senior official said.

The modus-operandi followed by the scamsters typically involved filing of complaints about loss of physical share certificates, followed by issuance of fresh shares in demat format and even unclaimed dividend to fictitious beneficiaries by conducting a fraudulent 'due diligence' exercise.

In several cases, the scamsters approach the real owners of physical share certificates and purchase the same for a nominal amount, after which they file a compliant about loss of physical shares and get issued duplicate shares in demat.

The scam has been traced to several parts of the country including in Mumbai, Ahmedabad, Delhi and Kolkata and the regulator has involved the local police in those areas as part of its crackdown on the syndicate members.

The fraud came to light after Sebi began probing Sharepro Services, which acted as the Registrar and Share Transfer Agent for many top companies, including Britannia, Asian Paints, Tata Communications and Kansai Nerolac.

Sebi found dividends and shares were "transferred to the persons related to the management of Sharepro", while showing in records they were being given to rightful owners.

Through an order dated March 22, 2016, Sebi has already barred Sharepro and several entities linked with the management of Sharepro from the capital markets.

Besides, the companies served by Sharepro were asked to change their Registrar and Share Transfer Agent, and also to conduct a thorough audit of their records and systems with respect to dividend payouts and transfer of securities.

Almost all such companies have already stopped taking service of Sharepro and have made alternative arrangements.

Sebi, which probed as many as 797 cases involving Sharepro, found that the company's database showed payments of dividend being made to the original shareholders, but a verification of bank accounts revealed that it was "paid to persons who were not the rightful shareholders or were not at all shareholders of the companies".

Out of the 797 cases, as many as 644 involved mismatch of dates besides other irregularities.

Expanding the probe, Sebi is now looking into the role of some other Registrars and Share Transfer Agents, while it has also decided to rope in some chartered accountant firms for empanelment to take up assignments relating to forensic audit of the Registrars and Share Transfer Agents.

Sebi introduced demat or shares in electronic form way back in 1996, but nearly 5 per cent shares of all listed companies are still said to be in physical format.

Taking into account the companies that may no longer be listed, the total value of shares still held in physical form is estimated in market circles at over Rs 2 lakh crore, though there is no official record of this.

This makes it a ripe hunting ground for the fraudsters, though RTAs are supposed to follow a strict procedure on due diligence of people seeking to convert their physical shares, the official added.