Clamping down on fraudulent activities, Sebi has barred 10 entities for sending out fake SMSes in bulk with "questionable recommendations" to pump up trading volumes in the shares of Supreme Tex Mart Ltd.
Promoters, directors and their relatives along with three other entities allured investors through fake Short Message Services (SMSes) recommending purchasing the loss-making company's shares before selling a "substantial portion" of their shareholding, according to Sebi.
After coming under its scanner, Sebi conducted a probe into trading in STML shares during the period from July 1, 2016 to January 31, 2017, specifically in relation to bulk messages of "questionable recommendations" about the scrip.
Underlining the need to take immediate action to prevent recurrence of such practices, the watchdog has banned 10 entities "till further directions" from the capital market besides ordering them to "to cease and desist" from disseminating messages or news-related to the securities market.
STML's promoter Goldleaf International, promoter Sanjay Gupta and his son Gautam Gupta, promoter and director Ajay Gupta promoter and his wife Shikha Gupta, director Kajal Rai and the company's joint account holder Ram Lal Gupta have been barred. The regulator has collectively referred Goldleaf and the six individuals as "identified entities".
Besides, three others entities -- Neeleshkumar Radheshyam Lahoti, Mohsin and Future Fintrade -- have been restrained from the securities market. While imposing the ban, the regulator observed that there "is a likelihood that the same modus operandi may be repeated by promoters/ directors to further offload their shareholding at the cost of innocent investors in an illegitimate manner".
According to Sebi, SMSes were sent to investors to pump up the volume of loss-making STML, whose accumulated losses exceeded its entire worth as on March 2015 and was classified as a sick company.
The ultimate goal of sending out fake messages was to attract innocent investors was for the promoters and directors to sell their shares and "eventually sold a substantial portion of their shareholding", the regulator noted.
Out of the 10 entities, Lahoti and Mohsin channelised the funds from STML to RouteSMS for the purpose of sending the bulk messages, Sebi said, adding that Future Fintrade was used as a front entity for entering into agreement with RouteSMS.
"The fund flow and sell off of promoters/directors prima facie shows that the identified entities engaged in a premeditated, manipulative practice of indirectly sending SMSes recommending 'buy' for STML, and selling during the period when volumes in the scrip of STML increased as a result of the SMSes," Sebi said in an order.
During July-September 2016, Sebi noted, that the promoters/directors of STML offloaded more than 27 per cent shares of the company adopting the mode. They hold 30.24 per cent stake currently, according to the order.
"In my view the modus operandi of 'identified entities' along with Lahoti, Future Fintrade and Mohsin indicates a scheme, plan, device, artifice or contrivance that is, prima facie 'fraudulent' as defined in ... PFTUP (Prohibition of Fraudulent and Unfair Trade Practices) regulations," Sebi Whole Time Member Madhabi Puri Buch said in the order.
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