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Sebi warns against illegal fund-raising

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Takes Action Against 194 Cos, Of Which 104 Are In Bengal

West Bengal has more number of companies raising money illegally from gullible investors by offering shares and debentures than all the other states combined in India. Of the 194 companies against whom Sebi has taken action for raising money by issuing non-convertible and convertible preference shares, non-convertible and convertible debentures, and also equity shares, 104 are from the eastern Indian state, data analyzed from a Sebi release showed.

The state with the second biggest lot in the Sebi list is Madhya Pradesh with 27 companies, while the third highest lot is from Odisha with 14 companies.

On Friday , the market regulator warned people not to invest in companies which raise money illegally by issuing these instruments through the private placement route. Termed as `Deemed Public Issues (DPIs)', these companies usually collect money by selling illegally shares and debentures to a large number of gullible investors. The alert from Sebi comes close on the heels of its warning to investors about companies that come under collective investment schemes (CIS) which illegally collect money from investors by offering co-ownership of land, plantations, cattle, etc, but not shares.

According to industry sources, investors in rural areas of the eastern region fall prey to unauthorized fund-raising by companies because of low level of financial literacy . “Combined with high agency commissions -that can be as much as 25%, companies often sell shares and debentures to people in rural areas with a promise of participation in new projects. However, such projects never take off. Instead, these fund-raisings take the form of Ponzi schemes with funds raised through series A, B, C and so on,“ said Kolkata-based industry veteran.

Starting mid-2011, Sebi has taken action against 193 companies for illegally raising money through DPIs.The marker regulator has also passed orders against entities and individuals who have acted as debenture trustees for debt offerings by companies but were not registered with Sebi as debenture trustees, a release from the regulator noted. “Investors are cautioned not to subscribe to such issues. Investors are advised to see whether any such entity has filed offer document or filed application with a stock exchange for listing,“ the release noted.

Times of India, New Delhi, 1st August 2015

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