SEBI Slaps Rs 11.90 Crore Fine On 19 Entities For 'Pump And Dump' Of Superior Finlease Shares

SEBI on Wednesday slapped penalties totalling Rs 11.90 crore on 19 entities and also barred them from the securities market for up to five years for indulging in a pump and dump scheme of shares in the matter of Superior Finlease Ltd. The regulator imposed fines in the range of Rs 10 lakh to Rs 5 crore on 19 entities, including Rajneesh Kumar, Ashish P Shah and Kirtidan K Gadhavi.

Further, SEBI also barred 17 entities, including Kumar, Shah, and Gadhavi from the securities markets for five years. In addition, the markets watchdog barred Jalaj Agrawal and Arvind Shukla from the securities markets for three years.

In its 54-page final order, SEBI said, "The noticees have orchestrated a well–planned 'pump and dump' operation in the scrip of SFL."

"The mastermind behind this whole operation was Noticee 1 (Rajneesh Kumar), who was not just a shareholder director of SFL, but also happened to be a director of a SEBI-registered intermediary, Indian Finance Guaranty Ltd."

Rajneesh Kumar, utilising connected entities, first manipulated the price of the scrip of SFL and, thereafter, utilising the services of certain 'operators', offloaded the shares of the company at an inflated price to the unsuspecting public investors.

"The majority of the trading by the connected entities on the Recommendation Day also happened through IFGL, the broking entity where Noticee 1 was a director."

"Further, the use of telegram channels to disseminate messages to unsuspecting investors led to a huge surge in trading volume in the share prices of SFL, on the Recommendation Day," SEBI's whole-time member Ashwani Bhatia said in the order.

This has resulted in public shareholders purchasing the scrip at not just an inflated price but also ended up being 'stuck' with shares having little liquidity.

It is noted that the number of public shareholders in the company saw a marked increase during this period. The company, which only had 526 public shareholders at the end of FY21, ended FY22 with 6,970 public shareholders, a more than 1,225% increase within a year, according to the regulator.

SEBI also noted from the reported financials of the company that its borrowings, reflected in the balance sheet, increased exponentially in the period FY19 to FY23 (Rs 1 crore in FY18 to Rs 72.70 crore in FY21) and thereafter, stabilised at around Rs 48 crore.

The weak financials appear to have prompted Rajneesh Kumar, to orchestrate the 'pump and dump' operation as there was perhaps a realisation that engineering such an operation, through connected entities and the help of 'operators' and the administrator of a Telegram channel, would result in generating profits for the Noticee which the Company otherwise was not in a position to create.

Such fraudulent activity dents investor confidence in the fairness of the markets and has a significant impact on investor participation, in the long run.

The regulator also directed the entities to disgorge the unlawful gains worth Rs 3.89 crore along with interest of 12% per annum, calculated from the Recommendation Day (i.e. Sept. 14, 2021) till the date of actual payment /impounding.

The order came after came after a complaint was received at the Securities and Exchange Board of India pertaining to suspicious trading transactions carried out by certain entities in the scrip of SFL.

Further, the markets watchdog passed an interim order cum show cause notice against the entities on Jan. 25, 2023. Thereafter, these entities have appealed against the interim order in the Securities Appellate Tribunal.

However, the tribunal disposed of the matter on May 4, 2023.