Bankers know when they bring a pump-and-dump company to capital market: Madhabi Puri Buch

Sebi chairperson Madhabi Puri Buch

Making a case for greater accountability by the managers of a initial public offering, Sebi chairperson Madhabi Puri Buch said investment bankers know when they're bringing a pump and dump company into the capital market, and they don't need to be told by the regulator on what needs to be done. She was speaking at the 13th annual convention of the Association of Investment Bankers of India (AIBI) in Mumbai on January 21.

Madhabi Puri said investment bankers are well-equipped to figure out if the company raising money is genuine or not. "Can't the banker figure out that a company planning to raise money had lower turnover three years back, and now suddenly it has a huge turnover? Or can't the banker see if the fee they are being given is for what purpose," Sebi chairperson questioned.

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The regulator said there is a high chance of accommodation entries in such cases, in order to pump up the volume of transactions.

Madhabi Puri pointed out that there has been significant misuse of IPO funds, often linked to related-party and layered transactions involving overseas subsidiaries. In many cases, these funds are directed toward purchases that lack tangible evidence, such as claims of acquiring software, companies, or other assets without clear substantiation, the chairperson said.

Raising the red flag on such fund raises, Madhabi Puri said actions by such companies imply, "Give me Rs 300 crore, but I will not tell you what it is for, as it is all for general corporate purposes. By the way, I may send it to my subsidiary abroad in a jurisdiction where even an audit of accounts is not required."

While a company is free to do what it wants with the money it raises, Sebi chairperson said that there cannot be zero accountability, with a company seeksing a 'blank cheque' to do anything with it on the pretext of 'trust'.