The tax department has launched an investigation against 90 companies for possible evasion, money laundering and for converting black money into “white” through a series of transactions in little-known shares, commonly called penny stocks.
Sources said the transactions were all done by “entry operators”, who would collect cash from “investors” and buy shares of unknown companies, which largely existed on paper. In most cases, preferential allotment of shares was done at a premium. Then a group of traders would trade among themselves to ramp up the share price.
After raising the price significantly , they would issue bonus shares to the investors or go for a stock split. And, despite all this, the share price would rise further. Typically , the “investors” would exit after 14-15 months or two years to avoid paying capital gains tax on the transactions. In the final settlement, the person who had routed cash through the operators would be paid in cheque, helping convert his black money into legitimate funds on payment of 8-10 per cent commission.
