Three months back the Securities and Exchange Board of India (Sebi) issued an advisory cautioning investors to take informed investment decisions and not be lured by text messages advising them to invest in certain instruments and securities. The regulator also informed them to deal only with intermediaries that are registered with the regulator.
However, that is not something that investors are diligently following.
A recent order passed by Sebi against 37 individuals and entities related to SMS Techsoft Ltd reveals that investors fell prey to such messages sent by the group who colluded to cheat them by first manipulating and raising trade volumes of the share and then sending SMSs recommending investors to buy the scrip. In this way the group made profits of over Rs 6 crore for themselves in the period between March and October 2013.
Between February and March 2013, Sebi noticed a series of messages recommending investors to ‘Buy’ shares of SMS Techsoft Ltd at its ongoing price of Rs 0.45 and was giving a price target of Rs 5 for the scrip. Some messages even referred it as ‘Jackpot call’ as they were meant to lure retail investors.
One such message read, “BUY SMS TECHSOFT LTD (BSE 531838) Rs 0.45. TARGET Rs 5 + 9. BIG ORDER FROM BANKING + ATM TRANSACTION” – Senders’ Mobile No: +918608862368; +918015874386.”
Many investors, unaware that the recommendation SMS which popped up on their smartphones were juicy baits, entered the scrip and lost their money.
Retail investors were buying when these 28 entities were selling and the price fell by 85 per cent from Rs 0.6 per share in March 2013 to Rs 0.09 in October 2013.
Sebi on Tuesday passed an order restraining all 37 entities (including three promoters — V Jagadish, Anita Srinivasbhatt Kadsanthalai and Akash Jagadish Vital) involved in the fraud from accessing the securities market and also prohibited them from buying, selling or dealing in the securities market.
Sebi further directed all of them to deposit an amount Rs 6,00,11,512 which Sebi saw as ill-gotten money, into an escrow account within a period of 30 days.
The order also restrained SMS Techsoft from raising additional capital through securities market, either directly or indirectly.
How SMS Techsoft lured investors
A flurry of mobile SMSes recommending investors to buy SMS Techsoft stock led the regulator to investigate the matter and what it found was a long-drawn plan to manipulate the stock and cheat retail investors.
The investigation revealed that SMS Techsoft that had a paid up capital of Rs 5.05 crore with 50.57 lakh shares as on December 2011, had in March 2012 decided to issued three crore preference shares of Rs 10 each to three promoters and 28 other entities. Sebi found that out of the 28 entities, 27 has the same mobile number and a common email id and it belonged to a person named Rajesh Mangilal Ranka (an employee with the company) whom Sebi had restrained (by order dated July 28, 2010) from participating in the market for two years. The regulator determined that all 28 were connected to each other.
A closer look into the issuance of preference shares revealed a maze of transactions between Ranka, Manjulaben Shah (wife of an allottee Maheshchandra Chunilal Shah), SMS Techsoft and 19 allottee including the three promoters.
Apparently, while the company should have received Rs 30 crore as proceeds for preferential allotment of three crore share issued to the 31 entities including the promoters, the money never came to the company.
Sebi figured out that Ranka transferred Rs 1 crore into the joint account of Maheshchandra and Manjulaben Shah and that money was then transferred to the company’s account which it transferred back to Manjulaben’s account. It was after that through a series of 59 transactions with the same money between Manjulaben, SMS Techsoft and 18 other allottees that allotment was carried out for them.
However, the money, after all this was completed, moved back from where it originated — into the bank account of Rajesh Ranka. All this was completed in a matter of 17 days between March 3, 2012 to March 20, 2012.
Other than this, Sebi also figured out that the addresses provided by the company were incorrect.
While the company disclosed that it had utilised the proceeds of preferential allotment amounting to Rs 30 crore for purchase of a land, it was found to be incorrect.
This seemed to be only a part of the scheme. On March 12, 2013 when the lock-in period of the equity shares allotted to the 28 entities of the Ranka Group (i.e., allottees other than the promoters) under the purported preferential allotment expired, they started trading heavily in the stock and took its trading volume up from an average of around 38,000 shares (between January 1, 2013 and March 12, 2013) to over 28 lakh shares between March 13, 2013 and October 18, 2013.
Sebi noted, “During the period (March 13, 2013 to August 20, 2013), the Ranka Group bought a gross quantity of 12,11,21,440 shares and sold a gross quantity of 20,72,46,229 shares. Thus, the entities of Ranka Group had altogether sold a net quantity of 8,61,24,789 shares till August 20, 2013.”
It further noted that in the period between August 21, 2013 to October 18, 2013 the entities of Ranka group bought a gross quantity of 2,59,31,404 shares and sold a gross quantity of 12,08,06,688 shares and thereby sold a net quantity of 9,48,75,284 shares from August 21, 2013 to October 18, 2013.
Sebi in its order said, “Once Sebi started inquiring into the matter, the Ranka Group has started dumping and exiting their position in the scrip. It is noted that till October 18, 2013 they have sold a net quantity of 18,10,00,073 shares, thereby making the profit of Rs 6,00,11,512,” which it has now ordered them to deposit in an escrow account in a period of 30 days.
Learning for investors
The above case clearly shows the sophistication with which fraudsters collude to cheat retail investors and in this case they seem to have worked on a plan for over 18 months.
While it is Sebi’s task to protect investors from such manipulators and from people raising money through ilegitimate collective investment schemes, investors too need to learn and act responsibly when it comes to investing their hard-earned money and not let greed take over wisdom.
They can, however, hope that a stronger Sebi with more powers vested upon it will be beneficial to them. With the regulator getting more powers through the ordinance promulgated by the President, investors can feel more secure.
The ordinance not only provides Sebi wth powers to order disgorgement of unfair gains but also permits it to attach bank accounts and property, and even arrest a person for failing to comply with disgorgement orders or paying the monetary penalty.
Sebi now has the powers to recover the penalty imposed and investors can hope that they can get their money back to such perpetrators of crime.
case in point
Between February and March 2013, Sebi noticed a series of messages recommending investors to ‘Buy’ shares of SMS Techsoft Ltd at its ongoing price of Rs 0.45 and was giving a price target of Rs 5 for the scrip. Some messages even referred it as ‘Jackpot call’ as they were meant to lure retail investors
Retail investors were buying when these 28 entities were selling and the price fell by 85 per cent from Rs 0.6 per share in March 2013 to Rs 0.09 in October 2013
Investigations revealed that SMS Techsoft had ,in March 2012, decided to issued three crore preference shares of Rs 10 each to three promoters and 28 other entities. Sebi found that out of the 28 entities, 27 has the same mobile number and a common email id and it belonged to a person whom Sebi had restrained from participating in the market for two years
Sebi determined that all 28 were connected to each other. Sebi on Tuesday passed an order restraining all 37 entities involved in the fraud from accessing the securities market and also prohibited them from buying, selling or dealing in the securities market
Sebi further directed all of them to deposit an amount Rs 6,00,11,512, which Sebi saw as ill-gotten money, into an escrow account within a period of 30 days