SEBI Bars 135 Entities from Market for Manipulating Investors Via Bulk SMSs

SEBI Bars 135 Entities from Market for Manipulating Investors Via Bulk SMSs

The Securities and Exchange Board of India (SEBI) has barred 135 entities from accessing the securities market and levied a fined on them for Rs. 126 crores for manipulating stocks of five small-cap companies by circulating bulk text messages with ‘buy’ recommendations to investors.

The five small cap companies are Mauria Udyog Ltd, 7NR Retail Ltd, Darjeeling Ropeway Company Ltd, GBL Industries Ltd, and Vishal Fabrics Ltd.

The regulator also issued show cause notice to 226 entities including numerous mule accounts, for violations of regulations. It also indicated a possible requirement of disgorgement of Rs 143.79 crore from these entities.

SEBI had conducted an investigation by into the alleged manipulation of shares of five scrips namely, Mauria Udyog Ltd., 7NR Retail Ltd., Darjeeling Ropeway Company Ltd., GBL Industries Ltd. and Vishal Fabrics Ltd.

The investigation conducted by SEBI had successfully identified certain suspected entities who were prima facie found to be involved in various fraudulent acts that had led to the abnormal rise in the volumes and prices of the above named five scrips during the investigation period.

Apparently, SEBI alleged that the modus operandi followed was under a pre-planned scheme by the entities mainly centered around circulation of Bulk SMSs in five scrips with a buy recommendation to public investors.

The scheme involved 3 major sets of entities namely, PV (Price Volume) Influencers, SMS Sender and Off Loaders apart from using a large number of entities who are apparently mule or conduit entities to operate the fraudulent scheme in these scrips.

As per the first leg of the scheme, PV Influencers were found to have increased the price and volume of the five scrips through inter se manipulative trades, followed by circulation of buy recommendations via Bulk SMSs in the five scrips by the SMS Sender, Mr. Hanif Shekh, who was prima facie the master mind behind the scheme to lure / induce public investors into buying such scrips.

In the last leg of the scheme, the Off Loaders sold the shares of these five scrips (previously acquired by them) at elevated prices thereby making substantial profits which were transferred through multiple layers and conduits to the Ultimate Beneficiaries of the scheme who were identified as Promoters of some of the companies and the mastermind of the scheme Mr. Hanif Shekh.

Therefore, in the light of the alleged violations, the SEBI restrained the entities from accessing the securities market and prohibiting them from buying, selling, or otherwise dealing in securities for an appropriate period,

Apart from the directions, in the light of the alleged violations of the provisions of the SEBI Act and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations) by the entities, SEBI issued show cause notice under SEBI Act, read with SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 2005, and called upon all the entities to show cause as to why certain directions shall not be passed against them.

SEBI has cautioned the public to be aware of any fraudulent activities being carried out through SMSs, various websites, social media like Telegram, Instagram, YouTube etc. It further advised investors to deal only with SEBI registered intermediaries.