Clamping down on a suspected case of tax evasion through stock market platform, regulator Sebi and leading bourse BSE have busted a Pakistan-based entity that was being used to lure investors through fraudulent SMSes.
While Sebi has barred Dhanya Finstock, a listed company, and 75 others from the securities markets till further orders, it has decided to conduct a detailed investigation into the matter besides referring it to other law enforcement agencies such as Income Tax Department, Enforcement Directorate and Financial Intelligence Unit for necessary action at their end.
Besides, a complaint has been filed with the Cyber Crime Investigation Cell of Mumbai Police by the top stock exchange BSE for “fraudulent misuse of the term BSE” by a website named ‘bsebull.in’ that has been shown as registered in Pakistan.
Sebi has also written to the Cell seeking information about this website, as also another one stocktips.in.
“Findings of BSE show that the website www.bsebull.in was created only recently and same was shown to have been registered in Pakistan. Since the name of BSE was used by BSEBull, BSE filed a complaint with the Cyber Crime Investigation Cell, Mumbai for fraudulent misuse of the term BSE.
“In this case, prima facie, a fraud was perpetrated by use of identity of a Sebi registered investment advisor, which shows the vicious intent behind the act,” Sebi said.
The probe by Sebi and BSE began after the stock exchange received complaints from several investors in July last year that they have entered into buy trades in Dhyana on July 27, 2015 based on the stock tips received through SMS.
A large numbers of buy orders were placed, based on messages appearing on BSEbull.in and spam messages on another website, stockAxis.com.
To BSE, the case appeared as that of misuse of stock exchange system to generate fictitious Long Term Capital Gains (LTCG) where buyers were also lured to buy in the scrip to give exit to few shareholders or preferential allottees.
As a pre-emptive measure, pending investigation and in the interest of the investors, BSE proposed to withhold the pay-out in the shares for trading carried out between July 27-29, 2015.
Dhyana shares rose by a whopping 43 per cent — from June 13, 2014 (first date of trading) to July 27, 2015, despite it having no prior trading history.
After an “abnormal and unprecedented rise in volume on July 27, 2015”, the stock saw a steep fall in the price the very next day touching the lower price band, trapping the investors who bought on the previous day.
Background of the company, including no trading history at Ahmedabad Stock Exchange, weak financials and suspicious price-volume pattern post listing at BSE, added to the concerns.
While Sebi acceded to the BSE’s request to withhold the pay-out of securities and funds for the trades executed on July 27, 2015, the stock exchange conducted a surprise inspection at the registered office of the company in Ahmedabad, where premises were found to be closed.
“The registered office was empty premises without any furniture or office equipment no operation was found to be carried out from said registered office. From visit to the aforementioned sites it was revealed that company exists at the corporate office, however, they could not provide any documents to show that any operation activities are carried out from said office,” Sebi order said.
BSE subsequently suspended trading in its shares.
After further investigations into the KYC documents and bank statements of various entities having sold the shares, it was found that a large number of them were connected to each other.
Sebi also called for Call Data Records (CDR) from telecom operators about the entities that had sent SMSes to lure investors. These senders included BSEBull, StAxis and HBJCAP.
Besides approaching the cyber crime cell, BSE also issued notice to the owner of the domain name at their email address and to Godaddy, the registrar of the website.
In a 38 page order, Sebi said “BSE shall withhold the pay-out of funds for the trades executed on July 27, 2015 and keep the same in interest bearing escrow account”.
Further, “BSE shall release the securities to the buyers for the trades executed on July 27, 2015,” it added.
Dhyana group entities were also found to be the net buyers to the preferential allottees and thereby created artificial demand for the supply of shares from preferential allottees.
Sebi noted that after release of lock-in, entities of Dhyana group had bought substantial shares of the Dhyana from the preferential allottees.
Also, the group provided a hugely profitable exit to the allottees, as 39 preferential allottees made a collective profit Rs 107.43 crores on a collective investment of 5.22 Crore, a whopping return of approximately 2,060 per cent on their investment in a period of 20 months.
“The preferential allotment was used as a tool for implementation of the dubious plan, device and artifice of Dhyana group and allottees” Sebi said.
“I prima facie find that Dhyana group and allottees used securities market system to artificially increase volume and price of the scrip for making illegal gains to and to convert ill-gotten gains into genuine one,” the regulator added.