Pyramid Saimira employee fudged quota during IPO: Sebi

The Securities Exchange Board of India said employee quota during the initial public offer of Pyramid Saimira  was fudged, reports CNBC-TV18's Vivek Law.  The market regulator will now probe the role played by Pyramid Saimira's management. Seven employees had allegedly cornered 99.5% of the employee quota. These people joined the company four months before the IPO, sold the shares immediately after listing, and then quit the company after the sale of shares.

Here is a verbatim transcript of Vivek Law's comments on CNBC-TV18. Also watch the accompanying video.

Seven people joined this company four months before the IPO. They were confirmed within three months of joining and therefore became eligible to participate in the employee quota, which was 5% of the issue of four lakh shares. Seven of them actually corner 98.5% of the entire employee quota, so most of the shares were actually given to these seven people.

What do they do?

The company got listed, they sold the shares and they quit with absolutely no notice period. Now Sebi findings shows interestingly that six of them were textile businessmen residing in Mumbai and the jobs that they had with Pyramid Samaria were of cashiers, administrators of their theaters and this has led to the suspicion that all these people were actually nothing but cloaks. They were cloaked employees as Sebi puts it in its order and the regulator goes on to say that all of these people could not have done this if it were not in complicity with the company's management.

Sources say that the role of Pyramid Saimira's management is under sharp scrutiny of the regulator. The regulator is likely to pass an order against them as well because the company did try and seek a consent term but that was rejected.

Sebi in fact goes on to say that there seems to be a clear understanding between the company and these individuals. It has drawn out several instances in its order where it says that these people were not genuine employees.

Why is this so important?

The retail portion of this IPO was oversubscribed significantly. These people have actually without being employees managed to get hold of a fair number of shares of the company and made gains of Rs 2.34 crore. 

They have now been asked to disgorge these gains - two out of these seven people have agreed to consent. The balance five have been barred from the market for three years and have been told to pay up this entire amount of Rs 2.34 crore that they gained. The role of the company is also under the scrutiny of the market regulator. There would be another order very shortly because the regulator's committee where consent orders go to has we learn rejected Pyramid Saimira's request of a consent, so we can expect another order on the company this time around.