Sebi probes penny stocks involved in tax evasion
Stock market regulator investigates over 50 companies for violating long-term capital gain mechanism for tax evasion
The stock market regulator Securities and Exchange Board of India (Sebi) is raging a war on tax evasion on the platform of stock exchanges. It is investigating more than 50 companies for violating long-term capital gain (LTCG) mechanism for tax evasion.
The regulator is looking into companies’ merger and acquisition model for tax evasion in LTCG. Widening the scope of investigation in LTCG misuse, Sebi has started looking into the aspect of common Board of directors in penny stocks. It has prepared list of illiquid scrips whose prices have been significantly rigged or fallen. The regulator has found some common board of directors in these companies.
A senior Sebi official said, “We will be investigating every aspect of tax evasion using LTCG method and the role of board of directors who were found common in companies.” In last 24 months, Sebi debarred over 1,000 entities for using the exchange platform for tax evasion of more than Rs 15,000 crore. The regulator has written to the income-tax department about more than 100 companies.
Recently, Sebi barred 246 entities from dealing in the capital market for allegedly engaging in fraudulent and manipulative trades in the shares of BSE-listed firm Kailash Auto Finance Ltd, which, according to the regulator, was detrimental to the interest of public investors. The investigation followed sudden and unusual price movement and volumes between November 7, 2014 and December 31, 2015, in the shares of Kailash Auto.
During Sebi’s probe, it was found that the company’s stock fell from Rs 28.05 to Rs 2.01 during the period while the daily average trading volume in the stock was 7 lakh shares. Prior to that, during July 22, 2013 to November 5, 2014, the price of the scrip ranged between Rs 36.85 and Rs 28.45 and with the daily average trading volume of 15 lakh shares, and daily average number of trades at 685.
During its initial investigation, Sebi found that there were several instances of acquisition and divestment of securities of connected unlisted private companies and corporate actions, including capital reduction, issuance of bonus shares, private placement and merger of such companies with Kailash Auto during the period.
There are several stocks that showed significant moves without any solid reasons. “We have found some companies which had grown or shrunk hugely in a short span of time without any major fundamental changes,” said the official.
For instance, Kelvin Fincap stock was Rs 9.30 on December 21, 2012, and on December 18, it closed at Rs 428.95 and then, on June 24, 2014, Rs. 615. Another one, Alka Securities on June 22, 2009, was trading at Rs19.15 and on May 18, 2012, it traded at Rs 0.33. Ambitious Plastomac was trading at Rs 8.95 on November 3, 2011, and on May 6, 2015, it dropped to Rs 1.28. Another stock, Iris Media Works was trading at Rs1.12 on September 23, 2013, and in next nine months, the price zoomed to Rs18.31 on July 28, 2014. In last two years, the regulator has managed to curb a significant proportion of tax evasion via LTCG route.