The Securities and Exchange Board of India (Sebi) on Friday suspended trading in Kamalakshi Finance Corp (KFCL), widening the crackdown against shell companies used to allegedly launder money through the stock exchange route.
In an interim order, the regulator barred a little more than 30 entities, including the promoters of Kamalakshi, from accessing the capital market. This is the fourth order by Sebiin its probe in this regard, where unscrupulous entities apparently attempted to launder up to Rs 20,000 crore. Sebi has so far suspended 27 listed companies and a little over 400 entities for manipulating the securities market to evade tax.
The method involved preferential allotment of shares in shell companies to entities wanting to launder unaccounted money. Later, the share prices of the companies in which allotment is made are artificially inflated. In the final stage, the preferential allottees are provided an exit whereby they book fictitious long-term capital gains, which doesn’t attract tax.
The shares of Kamalakshi rose from Rs 10 to Rs 489 in 150 trading sessions, with only 1,385 shares getting traded. According to Sebi, the entities in question managed to make a notional profit of Rs 1,300 crore against an investment of only Rs 42 crore in Kamalakshi.
“The prima facie modus operandi appears to be same as that used in the matter of Moryo Industries where the stock exchange mechanism was used for the purpose of generating bogus LTCG (long term capital gains tax) which is tax exempt and where KFCL was found to be actively involved in the whole design to misuse the stock exchange mechanism for generation of bogus LTCG,” said the Sebi order.
According to sources, more listed companies are under Sebi glare and the regulator may soon crack a whip against them.