Sharepro Services case: Sebi slaps Rs 33 cr fine on 13 individuals

Capital markets regulator Sebi has slapped fines totalling Rs 33 crore on 13 individuals, including senior officials of Sharepro Services (I) Pvt Ltd for flouting regulatory norms.

The regulator levied fines in the range of Rs 1 lakh to Rs 15 crore on 13 individuals, including Rs 15.08 crore on Indira Karkera (Vice President and client manager for a number of client companies of Sharepro), and Rs 5.16 crore on Govind Raj Rao (Managing Director of Sharepro).

Apart from senior officials, Sebi also penalised Balram Mukherjee, Pradeep Rathod, Shrikant Bhalakia, Anil Jathan, Chetan Shah, Sujitkumar Amarnath Gupta, Bhavani Jathan, Anand S Bhalakia, Dayanand Jathan, Mohit Karkera and Rajesh Bhagat. These individuals are referred to as noticees.

In its 200-page order, Sebi found that securities at least worth Rs 60.45 crore (on the basis of the value of respective scrip in October 2016) and dividends worth Rs 1.41 crore of genuine shareholders were misappropriated in the fraud.

Further, certain unlisted securities of genuine shareholders were also misappropriated in the fraud.

"I also note that non-maintenance and non-submission of records by the noticees limited the instances of misappropriation that could be investigated by the regulator and only misappropriation of assets of Rs 61.86 crore of genuine shareholders could be identified.

"I have also considered the directions issued with respect to the noticees vide order dated July 8, 2020, and restraints already undergone by the respective noticees," Sebi's Adjudicating Officer Asha Shetty said in the order on Friday.

The markets watchdog also observed that Rs 61.86 crore worth of securities and dividends were identified as misappropriated, but the records and analysis are limited in terms of fund trails and records, identifying how much each of the individuals misappropriated the genuine investors' assets as ill-gained profit.

"I am constrained by the facts that, proceedings in respect of some of the noticees have been abated, lots of the funds were withdrawn in cash, and the established fund and securities trail to the remaining noticees found guilty of the fraud, doesn't add up to the entire value of the assets misappropriated, and hence not able to compute the exact ill-gained profit made by each of the noticee found guilty of fraud," Shetty added.

The order came after Sebi received an anonymous complaint dated October 20, 2015, and thereafter, it conducted an investigation to examine in detail the records of Sharepro.

In March 2016, the regulator passed an interim order against Sharepro and 15 other entities, and subsequently, the directions were confirmed through a confirmatory order against all but one entity.

The investigation revealed the fraudulent siphoning of dividends by backwards working from the bank accounts of the entities.

It was also observed that the records of fraudulent transfer of shares at the office of Sharepro were massively falsified and that the system/database of the firm shows that dividends were paid to the original shareholders, but the verification of the bank accounts revealed that the dividends were paid to persons who were not the rightful shareholders or were not at all the shareholders of the companies.

Thus it was alleged that not only the dividend due to genuine investors was fraudulently siphoned off but the records were falsified so as not to reflect the correct position.

In July 2020, Sebi barred share transfer agent Sharepro Services, its three senior officials and 24 other entities, including Govind Raj Rao and Indira Karkera from the securities market in a matter related to diversion of assets.