The Securities and Exchange Board of India (Sebi) have barred six officials of Transgene Biotek from accessing capital markets for alleged fraud in the issue of global depository receipts (GDR). The list of officials restricted from the markets includes promoter and chairman K Koteswara Rao, as per an interim order by Sebi’s whole time member Rajeev Kumar Agarwal.
FE had earlier reported on the issue on November 16 and thereafter December 4, 2012. At the time investors had alleged that promoters alloted depository receipts (using structured GDR route) to an FII/sub-account, and then converted the receipts into equity shares and sold them in the domestic market by creating artificial volumes.
“Sebi has initiated a preliminary inquiry into the matter from the angle of impact of these allegations on the Indian securities market and interests of investors in those securities in India… I am of the view that the facts and circumstances of this case indicate there is a need for a detailed investigation on the GDR issues of Transgene till the end utilisation of the funds,” Agarwal said in the 10-page order.
Sebi has imposed restrictions on buying or selling securities in any manner. In addition, the regulator has also barred the company from issuing any securities, which includes shares or convertible instruments into shares until further notice.
“Considering the foregoing facts and circumstances of the matter, that the other entities involved in the transfer and receipt of funds are in complicity with Transgene and its promoters/directors in the design to defraud the investors… I find it necessary to intervene in this matter to safeguard the interest of the retail shareholders of Transgene and protect the integrity of the securities market,” Agarwal added.
Investors, in a written complaint to Sebi, had alleged that the company used several price-sensitive announcements (including delisting at a much higher price than the prevailing market price) as a ploy to elevate the stock price and trap retail investors so that GDR holders could exit with hefty profits.
In addition, investors had also raised doubts about the existence of Transgene Biotek HK, the Hong Kong subsidiary, and the technology transfer between the parent and subsidiary.
“It is relevant to mention here that Transgene and its directors had deliberately shown a rosy picture to the investors in Indian securities market by making GDR issue and then making false and misleading disclosures about the utilisation of the GDR proceeds.
Further, prima facie, they actively concealed the fact that the Transgene Biotek had never received the technology and other purportedly agreed services from the entities to whom the GDR,” Agarwal said.