Market regulator Sebi issues show-cause notice to Brightcom Group, promoter

In interim order, regulator says company painted a 'rosy picture' of its financial statements

The Securities and Exchange Board of India (Sebi) on Thursday issued an interim order and a show-cause notice on new-media company Brightcom Group (BGL), its chairman and promoter M Suresh Kumar Reddy and three others for accounting irregularities, manipulation in financial statements and misreporting shareholding pattern, among several other violations.

The markets regulator, in an ex-parte order, noted that due to accounting irregularities, the company could ‘paint a rosy picture of its financials’ which impacted the public shareholders.

The order states that during the investigation period, the promoters’ shareholding decreased from 40.45 per cent to 13.96 per cent and further to 3.51 per cent, indicating that they offloaded shares at prices which were artificially propped up by showing higher profits.

In the order, Sebi whole-time member Ashwani Bhatia stated that had the company not resorted to accounting irregularities, its actual profits would be significantly lesser than reported profits -- along with the assets and resources -- leading to a steeper decline in the stock prices.

The share prices of Brightcom have dropped over 80 per cent in the last one year, closing at Rs 15.42 on Thursday.

“BGL submitted incorrect and misleading quarterly shareholding pattern to the stock exchanges for 31 out of 34 quarters during March 31, 2014 to June 30, 2022,” stated Sebi.

The regulator also said that the books and documents submitted by BGL are not sufficient to explain the transactions by the company and its foreign subsidiaries.

Taking action on the irregularities, the market watchdog barred Reddy and three others from selling or diluting their shareholding.

Further, the company has been asked to show its correct shareholding pattern within seven days, submit the details on the impact of all the non-compliances in accounting standards, appoint at least one independent director within 15 days, and review the independence and performance of the statutory auditor.

The market watchdog has also directed the company to submit details regarding the date of purported pledges, off-market transfers, copies of loans and pledge agreements, prices at which shares were disposed of and all other relevant documents within 15 days.

The alleged defaulters have been asked to submit their replies and objections within 21 days.