Money Laundering Through SME Platform

SME Platform was created in India by relaxing the listing norms for the startups to raise the fresh capital

Stock Market Regulator (SEBI) noticed huge rise in the traded volumes and prices of four stocks — Eco Friendly Food Processing Park,Esteem Bio Organic Food Processing,Channel Nine Entertainment and HPC Biosciences which were listed on the SME segment of BSE during January 2013 to March 2013.

On reviewing the financial statements of these companies it observed that their profit after tax (PAT) and earning price per share (EPS) had consistently decreased from financial year 2012-13 onwards.

During this period, all these companies raised funds through series of preferential allotments. Later, they issued bonus shares. Consequent to the preferential allotments and bonus issues,the share capital of these companies increased manifold. Once the companies substantially increased their share capital base through preferential allotment and bonus issuances they came out with initial public offers in 2013.

The regulator said it had observed during preliminary inquiry that a set of common entities were funding the IPO of all the four companies either through directly transferring the amount in the escrow account of the companies on behalf of certain IPO allottees or by transferring the amount to the concerned IPO Allottees’ bank accounts, who, in turn, applied for the shares in IPO On analyzing the bank statement and KYCs of all the entities who funded these IPOs showed they were related to each other.

Complete order from Securities Exchanged board can be accessed from the SEBI Website.