India's Securities Market Regulator Takes Action

India's Securities and Exchange Board of India (SEBI) has suspended trading in shares of Bharat Global Developers Ltd., amid allegations of stock price manipulation through fraudulent accounting practices and false disclosures.

Bharat Global claimed to have secured significant orders from major corporations such as Reliance Industries Ltd., Tata Group, McCain India Agro Pvt., and UPL Ltd. However, SEBI has determined these claims to be false.

The Stock Market Boom's Dark Side

The case highlights the darker aspects of India's stock market surge, which has seen equity benchmarks triple since the pandemic. This surge has attracted numerous small investors, drawn by impressive returns. The crackdown also follows recent regulatory tightening on listing rules for small companies, a segment particularly susceptible to price manipulation and fraud.

Prior to this, SEBI canceled the initial public offering of Trafiksol ITS Technologies after uncovering that a key vendor of the company was a shell entity.

Preferential Share Offerings and Investor Actions

Bharat Global issued about 100 million shares to 41 investors through preferential share offerings in April and August, at a significant discount to market price. SEBI alleges that the subsequent disclosures of high-value orders were 'false and misleading,' timed to benefit these investors.

Following these disclosures, 13 of the 41 investors sold their shares for 2.7 billion rupees ($31.7 million) after the lock-in period ended on October 31. This led to a four-fold increase in public shareholders, suggesting many unsuspecting investors acquired the stock.

SEBI member Ashwani Bhatia stated in the order that 'material disclosures of the company and the actions of the preferential allottees appear to have been planned towards sale of shares to make huge profits.'

Bharat Global, which reported negligible revenues and profits before the fiscal year ending March 2024, had its shares suspended for trading until November 2023 due to non-payment of listing fees to the BSE. SEBI has barred several investors in the preferential offerings from accessing the capital markets and has seized the 'unlawful gains' made by these investors.