Sebi suspends two more erring firms

The Securities and Exchange Board of India (Sebi) is continuing its crack down on the penny stock manipulators. The regulator has released orders suspending two more erring brokers and promoters.

It suspended the certificate of registration of BSE Member Galaxy Broking Ltd and directed not to buy, sell or deal in securities till further directions in this regard.

Certain clients of Galaxy are also directed not to deal in securities of companies indicated against their names in Table, directly or indirectly, till further directions.

Another small company Millennium Cybertech has been ordered not to hob nob with the equity markets. The company's promoters and certain clients have been directed not to deal in the security till further directions.

The Sebi order relating to Galaxy said the company had played a major role in generating artificial volumes and rise in the prices of large number of penny stocks.

The burgeoning volumes created through the artifice of a web of off market/market transfers and trading between a common set of inter-connected clients, some of whom have also been funded by allowing them to maintain large debit balances, and the tell-tale strands of inter-locking deals intermediated by the broker, speak volumes about the penny stock manipulation in the most brazen way.

Generation of this large volume, through artificial demand and supply has also helped in ramping up prices of companies which otherwise had lackluster performance, which did not justify the spurt in share prices.

The promoters of these companies offloaded their shareholding at higher prices, a fact which has also been brought out in the order of Sebi in the cases of Mega Corporation and Karuna Cables.

It was also seen that promoters /directors were closely associated with some of the companies in which Galaxy, its directors and other inter-connected clients traded. Most of the inter-connected clients also appeared in the recent orders of Sebi.

In the case of Millennium, the Sebi order says that the company's stock price vaulted from Rs 18 in march 2004 to Rs 66 in May 2005 and further to Rs 240 in Sepetmber 2005.

The rise in stock price was accompanied with a rise in the volumes and consequently, the promoters offloaded about 20 per cent of the equity into the market and the stock plummetted to current levels of Rs 2.5.