MUMBAI: Securities and Exchange Board of India (SEBI) chairperson Madhabi Puri Buch on Tuesday asked merchant bankers to bring only financially viable companies to the market, flagging multiple instances of ‘pump and dump’ in the market in recent months.
Addressing the annual convention of investment bankers on Tuesday, Buch said, “You (investment bankers) know it already when the company you are bringing to the market is a bad one or not. If it is a bad company, it is to pump and dump.”
The quality of documentation also has several gaps, she said. “We are like doctors who see ill patients all day. You won’t believe the kind of egregious things we see,” Buch said, adding that some whistleblowers approach the regulator only when it is convenient for them.
SEBI has found huge misuse of funds raised through initial public offerings by certain companies, she said. “We have seen such egregious use of money, and it all goes back to related party transactions; layered transactions, particularly with overseas subsidiaries. And all of this go into purchase of things that won’t have any tangible evidence.”
Buch said markets have deployed resources to ensure compliance with the spirit of law and the growth in capital markets rests on investor trust.
Echoing similar views, BSE managing director Sundararaman Ramamurthy, speaking specifically about the listing of small and micro enterprises, said merchant bankers should bring financially viable to the public market.
Of the 250 applications made by such companies for listing, 78 applications were either withdrawn or returned due to deficiencies and inadequacies in those documents, said Ashish Chauhan, managing director of National Stock Exchange of India.
One must not drop the guard in carrying out regulatory duties as there are some gaps and concerns around listing of small and medium enterprises, he added.
Pump and dump issue
The SEBI chief said investment bankers know exactly when they are bringing a “pump and dump” company to the market. There are markers like the high fees being paid to the banker, or the company having less or no staff at all or no visits by bankers to the facilities of a company, which speak loudly about the intent behind an issuance, she said.