Regulator Sebi on Monday barred Chromatic India Limited from the capital markets for five years for manipulation of its global depository receipts (GDR) issue.
Besides, the regulator has restrained the company's Whole Time Director Vinod Kumar Kaushik for three years and non-executive independent directors Vipin Sharma and Ajay Sethi for one year.
Sebi, after an investigation of the GDR issue during October 2010, found that Chromatic misled investors into believing that the USD 4.2 million GDR issue was successful, whereas at the back-end, there was only one subscriber Vintage FZE. In fact, the GDRs were subscribed by Vintage with the help of the company itself.
Moreover, by entering into the agreement for facilitating the subscription of its own GDRs, Chromatic has played a fraud on the securities market, misled investors and created a false impression about the company in the securities market, the regulator said.
The probe found that European American Investment Bank AG (Euram Bank) had granted loan to Vintage by way of a loan agreement for making payment towards subscription to Chromatic's GDR issue. Further, Chromatic pledged its entire GDR proceeds as security by entering into a pledge agreement with Euram Bank.
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"By its acts of concealing and suppressing vital material facts about the arrangement of the Pledge and Loan Agreements, the noticee company(Chromatic) has committed a fraudulent act upon its own existing shareholders and also upon all the investors of the securities market who might have been induced to deal in the shares of the company due to the artificially created positive outlook about the company's performance," Sebi said in its 32-page order.
Further, the regulator said the three directors who approved the board resolution thereby acted as parties to the fraudulent arrangement for subscription of GDR by only Vintage.
By indulging in such activities, the entities violated PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) regulations, Sebi said.
Accordingly, the regulator has barred Chromatic "from accessing the Securities market including by issuing prospectus, offer document or advertisement soliciting money from the public and is further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly in any manner, for a period of five years."
It has prohibited Kaushik from the capital markets for three years; and Sharma and Sethi for one year.
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