JM Group entities pay ₹3.9 cr to settle regulatory lapses case with Sebi

JM Group entities -- JM Financial, JM Financial Services and JM Financial Products -- have settled with markets regulator Sebi a case of alleged irregularities in managing public issue of non-convertible debentures (NCDs) of Piramal Enterprises after paying Rs 3.92 crore.

Additionally, JM Financial Ltd (JMFL) and JM Financial Services Ltd (JMFSL) disgorged illegal gains worth Rs 1.22 crore and Rs 1.33 crore, respectively, according to a settlement order passed by Sebi on September 19.

Also, JM Financial has agreed to a voluntary three-month debarment from acting as a manager in any public issue of debt securities, effective from the date of the settlement order. Similarly, JMFSL will refrain from acting as a distributor in such issues for the same period, while JMPL has accepted a three-month ban on undertaking IPO financing activities.

The case relates to public issues of NCDs during 2023.

During the examination of one such public issue of NCDs of Piramal Enterprises, it was observed that a significant number of individual investors sold the debt securities allotted to them on the day of listing itself, as a result of which the retail ownership came down sharply.

Following this, Sebi passed an interim order on March 7, 2024, against JMFL, which was acting as one of the lead managers to the issue of NCDs of Piramal Enterprises, barring it from taking any new mandates. Thereafter, Sebi passed a confirmatory order on June 20, 2024, wherein it confirmed the directions issued that JMFL would not act as a lead manager in any public issue of debt securities till March 31, 2025.

Subsequently, an investigation was carried out in the matter wherein it was observed that applicants are alleged to have devised a scheme wherein the NBFC arm of the JM Financial Group -- JMFPL -- used the Power of Attorney and submitted bid applications for 11.34 lakh NCDs, on behalf of 1,008 applicants, in the public issue of NCDs of Piramal Enterprises. These 1,008 applicants were also clients of the stockbroker JMFSL.

JMFPL had provided loans to 1,008 applicants at an interest rate of 10 per cent to apply for the NCDs, which carried coupon rates of 9 per cent, 9.05 per cent and 9.35 per cent.

Following the allotment, JMFPL purchased the 11.34 lakh NCDs allotted to the 1,008 applicants on the listing day on November 7, 2023, at a predetermined price higher than the sale price of the trades executed by JMFPL on the same day.

JMFPL offloaded the NCDs at a loss. Thus, JMFPL provided a guaranteed exit with profits to all the applicants by purchasing NCDs at a predetermined price on the listing day.

The applicants -- JM Financial, JM Financial Services and JM Financial Products -- alleged to have engaged in an unfair trade practice wherein all three entities acted together as a group to provide a guaranteed exit at profit to the 1,008 applicants on the listing day. This was achieved by sharing part of the commission, brokerage, or incentives they had received from the issuer.

These applicants, as a group, are alleged to have made a net gain of Rs 1.99 crore by dealing in 11.34 lakh NCDs allotted to the 1,008 applicants in the public issue of Piramal Enterprises, Sebi alleged.

After receiving the payments from JM Group entities, Sebi ordered that "any proceedings that may be initiated for the violations...are settled in respect of the applicants".

These orders came after the entities proposed to settle the case of alleged violations "by neither admitting nor denying the findings of fact and conclusions of law," under the settlement rules.