The Securities and Exchange Board of India (Sebi) on Friday barred Varanium Cloud and its managing director for allegedly diverting funds raised through initial public offer (IPO) to other entities and other fraudulent practices, the second such action by the markets regulator within a week.

The regulator said the company made public announcements to paint a rosy picture while there was no actual economic activity. The company was listed on the NSE Emerge platform.

As the share prices rose, it gave the promoter firms an opportunity to exit and reduce their stake, at the cost of retail investors, said Sebi.

The promoter of the company made net gains of Rs 122.76 crore while the company made Rs 17.61 crore gains.

“Retail investors need to exercise a certain level of due diligence while investing in SME companies and not be swayed by seemingly attractive returns that may quickly come their way. In other words, investors need to be realistic and responsible about their return expectations,” Sebi cautioned.

Not only did the company not have any documents to prove transactions, but the money raised through the IPO and subsequent Rights Issue was not used for the purpose mentioned in the offer documents. Sebi said the company entered into transactions that appeared only on paper to present an image of being a “top-notch IT service provider that was entering greenfield areas”.

The IPOs of SMEs are approved by the exchanges and do not go through the rigorous checks of Sebi.

Earlier this week, Sebi barred Add-Shop E-Retail and members of its management from the securities market for alleged manipulation of financial statements. As per the order, the company booked fake sale and purchase entries so much so that more than 46 per cent of sales of the last three financial years were found to be fictitious. The orders come at a time when several SMEs have been under scanner for manipulation and are under increased monitoring, following concerns of fraudulent practices. 

First Published: May 10 2024 | 9:01 PM IST

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