SEBI issues notices to builders, brokers and film stars

The Securities and Exchange Board of India (Sebi) has started issuing showcause notices to 331 listed firms including builders, brokers and bollywood stars, suspected to have acted as shell companies for those with illicit funds. According to Sebi, large number of companies having acted as shell companies are linked to businesses like real estate, commodities and stock broking, films and television (including those on digital platforms), plantation and non-banking financial services. Action has also begun against more than 100 unlisted entities that could have traded in stocks with laundered money. Sebi's decision to restrict share trading has been reversed in case of some firms after they approached the Securities Appellate Tribunal; it has been permitted to go ahead with its probe against them and others who could have violated securities laws. While many of these companies have gone public to deny any wrongdoing and have said they are not 'shell companies', a wrong perception has got created about this nomenclature and even established and well-known firms can act as 'shell companies' by providing a platform for money laundering and converting black money into white. While several small brokers are already in the list of 'suspected shell firms', their links to bigger brokerage groups are being probed by Sebi. The role of some brokers in creating a 'panic-like situation' in the stock market after Sebi's action to restrict trading in shares of 331 firms is also under scanner as the move would have safeguarded the interest of minority shareholders but the brokers with their 'skin in the game' wanted to get their money out. Some of these firms have shown on their books contracts that are not related to any actual work and could have been mentioned just to inflate turnover, while a few of them are already barred by various authorities across the country. As Sebi continues its probe, affairs of these companies are also being looked into by agencies such as I-T Department, ED and SFIO (Serious Fraud Investigation Office) to unravel what one top regulatory official described as a ‘big black money bonhomie’. Several of these firms are also suspected to have indulged in huge cash dealings post-demonetisation. Marking coordinated efforts on their parts, the regulatory and investigative agencies are sharing their investigation reports with each other. Citing official documents and preliminary probe findings, multiple regulatory and government officials said nearly 500 entities (including listed and unlisted ones) are currently being probed but some of the names have not been made public yet due to the sensitivity of the matter and to safeguard the investigation process. According to officials, any action against such 'big names' would take place after the investigation has reached some conclusive stage.