The Hindu Business Line : SEBI hauls up everyone in Bhoruka Financial deal at Magadh SE

A PROBE by SEBI into transactions in a little-known stock, Bhoruka Financial Services Ltd (BFSL), on Magadh Stock Exchange in violation of directives, has unravelled a curious chain of events, including suspension of the (officiating) executive director officer and impounding of the company's shares lying with the depository.

What makes the matter so intriguing is that MSE had actually commenced trading illegally although it "had not complied with the conditions of renewal". (This required that trading should start only after it sets up a settlement guarantee fund).

The matter becomes even more intriguing in view of the fact that the BFSL stock was last traded on the Bangalore Stock Exchange (where it is listed) in 1998 for Rs 5. The stock, not listed on the Magadh Stock Exchange at all, was admitted to trade under the permitted category on August 1.

SEBI found that of the total trading volume (Rs 109.71 crore), nearly 99 per cent was in BFSL. The stock was admitted at the request of its member, Rajat Share & Stock Broker Pvt Ltd. "The trades amounting to 1,98,850 shares, and accounting for 98.73 per cent of the paid-up share capital of BFSL, were all executed at an incredibly high price of Rs 4,490 a share," noted SEBI.

These were executed by BFSL's promoters as sellers while the Delhi-based DLF Commercial Developers Ltd was the acquirer. The latter had earlier applied to SEBI to seek exemption from making a public announcement to acquire these shares (98.73 per cent) from the promoters at a pre-negotiated price of Rs 2,400. SEBI had then exempted the acquirer from making an open offer. Therefore, the trades done on MSE at Rs 4,490 were also in violation of the takeover order.

The Officiating Executive Director of MSE - Mr C M Pandey - has been suspended from acting as OED in MSE or in any other institution related with the securities market, till further orders. This has been done "in view of the reckless and unseemly conduct" on his part.

Rajat Share & Stock Broker, which facilitated the transactions without following the `Know Your Client' criteria, has now been directed not to deal in stocks.

Demat shares lying with Central Depository Services have been impounded till further orders. The depository has been directed not to permit any transfers.

DLF Commercial Developers, the acquirer, has been barred from dealing in the scrip so long as these directions are valid.

Promoters of BFSL, who have prima facie gained unfairly, have been directed to deposit the proceeds of these transactions in an escrow account with a nationalised bank. They will have to take prior approval of SEBI for dealing in this account.

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SEBI hauls up everyone in Bhoruka Financial deal at Magadh SE