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Referring to Supreme Court's order against Sahara group as a benchmark for cases of unauthorized raising of money from public, Sebi has barred seven persons and one company from the markets for ten years for their involvement in the estimated Rs 1,500 crore 'StockGuru' fraud.
Besides, these entities would also have to refund the entire amount collected fraudulently from gullible investors, along with an interest of 15 per cent per annum, Sebi said in an order after investigating the case.
The order follows a Sebi probe into complaints received by it regarding one Lokeshwar Dev and his accomplice Priyanka Dev, both of whom used several aliases, fraudulently raising more than Rs 1,500 crore through sale of preference shares of a company named SGI Research & Analysis Ltd.
Names used by them included Ulhas Prabhakar Khaire and Raksha J Urs, Siddharth Jay and Maya Siddharth Marathe, Dr Raj and Priya Zaveri, Dr Rakesh Kumar and Prachi Maheshwari.
A Sebi probe into the case found that the fraudsters had tricked the investors into putting in their money with a promise of 18 per cent dividend, although the real assured dividend was a minuscule 0.12 per cent.
Besides, the money might have mostly been collected in cash to avoid any regulatory glare, as SGI's bank account had entries for a total amount of just about Rs 44 lakh towards subscription of its shares by 162 persons.
However, this was enough for Sebi to enforce the norms that make any offer for subscription of shares or debentures to 50 or more persons a public issue, thus making it mandatory to seek Sebi's approval for any such offer.
Passing the order, Sebi's Whole-Time Member Rajeev Agarwal said that the Supreme Court order of August 31, 2012 in Sahara case has "held that an offer to fifty or more persons becomes public issue" by virtue of the relevant provisions of the Companies Act and needs compulsory listing.
Two Sahara group companies were asked by the Supreme Court to refund the money collected from investors through certain convertible debentures, after the firms approached the apex court against a Sebi order in this regard.
"In the present (StockGuru) case, convertible preference shares were offered and issued to more than 49 persons" and therefore it qualifies as a public offer, he said, adding that SGI offered 'specified securities' to public but did not comply with the applicable Sebi Regulations and Companies Act.
Agarwal further noted that it is a settled position, in view of the Supreme Court order in Sahara case, that the power to administer proceedings in cases of public issue of shares or debentures lies with Sebi.
Sebi's investigations found that SGI had invited investors to subscribe to its convertible preference shares through its office in Delhi, its agents and representatives, associate concern 'stockguru.india' and its website.
Sebi said that "these securities were of face value Rs 10 each and were offered and subscribed at an exorbitant premium of Rs 1,500 per share". However, the promised dividend of 18 per cent was found to be on face value of Rs 10 and not on exact per share price of Rs 1,510.
"In other words, subscribers were promised dividend of Rs 1.80 on investment of Rs 1,510 (which translates into 0.119per cent real dividend). Further, there was no reference of redemption premium to be paid to the subscribers," Sebi said.
"There was no economic justification of payment of so high premium with minuscule dividend..."it added.
SGI did not issue any share certificate to subscribers even on payment of money and made various "misrepresentations and false statements containing misleading and distorted information that the said convertible preference shares shall soon get listed after Sebi approval and the listing price would be around Rs 2,000 per share".
SGI was incorporated on June 10, 2010, while the issue of its convertible preference shares opened for subscription in October, 2010 and continued till January 2011.
The investigations revealed that Stockguru.india and its partners had also floated 'Multi Level Marketing' or 'Ponzi' schemes and raised money from public through dubious schemes in different part of the country using different names.
The Economic Offences Wing, New Delhi has arrested them and they are investigating the frauds committed by them.
The entities used for the fraud included SGI Securities, G3 Commodities, SGI Beverages, SGI Buildtech, Coppertrenzs, DP Securities, DP Currencies, DP Commodities, DP Gems and Diamonds, DP Jewels, DP Enterprises and Stockguru India.
Sebi said that SGI and its promoters "made false and untrue, promises, declarations/statements containing misleading and distorted information with intention to lure innocent and gullible investors" and raise money from public in a fraudulent manner.
Sebi had issued show cause notices in May 2012 to SGI, Lokeshwar Dev, Priyanka Saraswat Dev, Pradeep Sharma, Baldev Raj Sharma, Ramesh Sharma, Sanjeev Sharma and Sonia Sharma.
Pradeep Sharma contended before Sebi that he has "90 per cent physical disability" and was threatened by Lokeshwar Dev to become a director he was himself cheated by him.
However, he could not provide any evidence, Sebi said. Baldev Raj, Ramesh, Sanjeev and Sonia Sharma claimed that they were not the directors, but initial subscribers in the SGI and they had subscribed to only 10 shares each. However, Sebi found them to be instrumental in incorporation of SGI and "formulation of the plan of fraudulent public issue of SGI".
"As regards the contraventions found in the present case for which Sebi is concerned, it is necessary to lift the corporate veil of SGI to reach out to all the persons involved and instrumental in the formulation of device and contrivance and making them answerable for the acts committed in furtherance of common design," Sebi said.