On the day of the listing, 17 October 2011, and the days subsequent to listing, the OCAL scrip was trading in an anomalous fashion, when it shot up from Rs115 to Rs198. SEBI had discovered that OCAL had manipulated its share price by diverting the IPO proceeds through structured layers of middlemen and entities
Onelife Capital Advisors (OCAL) is a Securities and Exchange Board of India (SEBI)-registered merchant banker, portfolio manager as well as stock broker. OCAL as well as Atherstone Capital Markets (ACM), its merchant banker, were barred by SEBI from the participating in the market on 28 December 2011, for glaring irregularities and non-compliance of SEBI regulations.
OCAL raised Rs36.85 crore through an initial public offering (IPO) of 33.50 lakh shares at Rs110 per share. The company planned to spend the proceeds for the purpose of developing its portfolio management business (Rs11.57 crore) as well as setting up corporate offices around the country (Rs8.97 crore). The remaining amount was earmarked for ‘general corporate expenses’, brand building and meeting expenses of the issue.
On the day of the listing, 17 October 2011, and the days subsequent to listing, the scrip of OCAL was trading in an anomalous fashion, when the price shot up from Rs115 to Rs198. SEBI decided to investigate into the matter. The regulator had discovered that OCAL had manipulated its share price by diverting the IPO proceeds through structured layers of middlemen and entities.
Most notably was the fact that the 7.28% of the IPO proceeds went to 80 retail allottees and two NIIs, all of whom shared the same postal addresses as well as shared the same bank branch—Bank of India, Panchnath branch situated in Rajkot. There were also related to each other one way or another. Incidentally, one broker—ANS Pvt Ltd shared the same address, as well. However, investigations are on to ascertain whether ANS Pvt Ltd had any role in this scam.
The company had flouted SEBI regulations for failing to put up a public notice for convening a board meeting it held just after filing the Red Herring Prospectus (RHP) i.e. 21 September 2011 but before the IPO date (12 October 2011). As per regulations, any such events before the IPO must be conveyed to the general public.
Thus without notifying the public, OCAL had convened a board meeting to raise as much as Rs11.50 crore in short-term loans from Prudential Group of Companies, Kolkata, towards obligations to two defunct and non-existent companies namely, Fincare Financial and Consultancy Services (FinCare) and Precise Consulting Engineering Pvt Ltd (PreCons), for availing of their ‘services’ towards development of PMS business. Moreover, after the IPO, an amount of Rs2.5 crore was immediately transferred back to Prudential Group in a circuitous manner. What is shocking here is the director of one of the Prudential Group of companies was arrested by CBI in 2003 for siphoning off funds from Bank of Rajasthan. Further, the entities of Prudential Group were implicated by SEBI in the past, for violations of disclosure and insider trading norms. ACM did not take any measures to follow up on the events of the company post RHP.
When probed further, SEBI found out that FinCare and PreCons, according to the memorandum of understanding (MoU), had “excellent track record”. However, past records show otherwise. FinCare had been punished on 7 February 2011 by SEBI for executing synchronised deals with Sparc Pesticides Pvt Ltd and creating artificial volumes in Jindal Stainless Steel. Further, it found out that PreCon was a ‘bankrupt’ entity without any records filed with ROC (Registrar of Companies) in the last three years. Moreover, when SEBI tried to contact these entities, it found out that the addresses provided by FinCare and PreCons in the MoU, were either locked out, vacant or non-existent. In other words, the addresses were provided out of thin air.
The funds received by FinCare and PreCon, from OCAL, were shamelessly transferred to five Surat-based entities which were not part of the securities business. What is worse was that the bank accounts of most of these Surat-based firms were opened as recently as October 2011 and were closed immediately after the funds were further siphoned out to various other entities.
OCAL had used the garb of loans from and to Prudential Group, which in turn transferred large amounts of money to entities that had bought heavily during the IPO and in the next few days after the IPO, in an apparent act to bid up the stock price. The entities had received funds from “Sardhav Investment and Finance Pvt Ltd” which in turn had received funds through various bank accounts from the Prudential Group.
In a twist to this IPO scam, it was discovered that OCAL indirectly ended up receiving funds from another IPO scamster, RDB Rassayans, through an entity called Namokar Duplicating Pvt Ltd who in turn financed Prudential Group, to the tune of Rs7.06 crore. Incidentally, RDB Rassayans is the seventh and final company in the IPO series being covered by Moneylife.
The chart below illustrates the manner which the IPO proceeds were diverted by OCAL (Source: SEBI)
A part of the IPO money was brazenly diverted to friends and group companies of OCAL and its promoters. The amount of Rs7 crore which was supposed be paid to Masala Gruh Properties Pvt Ltd for setting up a corporate office was cancelled after the filing of the RHP and, instead, paid to FinCare for the same purpose. FinCare then diverted the Rs7 crore Onelife Gas & Energy Infra Ltd and Shalini Patildar, who was a friend of OCAL managing director, Pandoo Naig.
Incidentally, Mr Naig had received a tax notice of Rs17.58 crore, and the same was mentioned in the prospectus under the ‘Risk Factors’ section. However ACM failed to query this aspect and instead signed off the prospectus as though this was not a big deal. Why such casual behaviour?
Prior to the issue, the promoters of the company boosted OCAL’s net-worth from a mere Rs1 lakh to Rs10 crore, within a space of three years. While this is legal, it is alarming to note that they had possibly misappropriated company money for their own benefits by transferring the same funds brought by them to separate entities owned by them. ACM hadn’t ascertained the genuineness and motive of these transactions. If we take this into consideration, the net-worth would be less than Rs10 crore thereby rendering OCAL ineligible for IPO.
SEBI has ordered OCAL to recall all the IPO proceeds it had diverted to FinCare and PreCons, and deposit the same into an escrow account. As usual, the investors will not be getting back their hard-earned savings.
Over the short-term the Nifty may move in the range of 5,050 and 4,920
A good set of earnings reports and supportive global cues helped the market close higher today. If the index maintains itself above today’s high, we may see it reaching the level of 5,050. However, if the benchmark breaks today’s low, the first support is at 4,910. The National Stock Exchange (NSE) saw volume of 72.32 crore shares which is lower than yesterday’s.
The market opened firm tracking good quarterly results posted by Indian companies and news that the International Monetary Fund (IMF) plans to expand its lending resources to help nations counter the slowdown emanating from the Eurozone debt crisis. The sentiments were also supported by the Asian bourses, which were trading with good gains in morning trade.
The Nifty opened at 4,995, up 39 points, and the Sensex added 123 points to its previous tally to resume trade at 16,574. The Sensex hit its intraday high of 16,662 in early trade itself, while the Nifty touched its mid-session high in late trade with the index at 5,024.
Quarterly earnings reports from Bajaj Auto and HDFC Bank, which were in line with market expectations, kept the momentum going in subsequent trade. The indices continued to remain firm in the second half of the day boosted by a firm opening of the key European markets.
Gains continued to accrue on brisk institutional buying in realty, metal, power and banking stocks in late trade. The market settled off the highs of the day, but saw the indices crossing their psychological levels. At the close, the Nifty gained 63 points at 5,018 and the Sensex jumped 192 points to finish at 16,644.
The advance-decline ratio on the NSE was 1201:572 .
Among the broader indices, the BSE Mid-cap index climbed 1.43% and the BSE Small-cap index advanced 1.24%.
The top sectoral gainers were BSE Realty (up 3.54%); BSE Metal (up 2.81%); BSE Power (up 2.43%); BSE Bankex (up 1.85%) and BSE PSU (up 1.51%). However, BSE IT (down 0.32%); BSE TECk (down 0.29%) and BSE Fast Moving Consumer Goods (down 0.02%) settled lower.
Sterlite Industries (up 6.77%); Tata Power (up 6.08%); Hindalco Industries (up 5.06%); DLF (up 4.62%) and NTPC (up 4.19%) were the top advancing stocks on the Sensex. BHEL (down 2.71%); Mahindra & Mahindra (down 1.68%); Bharti Airtel (down 0.83%); Infosys (down0.71%) and ITC (down 0.24%) were at the bottom of the index.
The top five stocks on the Nifty were Reliance Infrastructure (up 10.46%); Tata Power (up 6.54%); Sterlite Ind (up 6.30%); Jaiprakash Associates (up 6.06%) and NTPC (up 4.86%). The major losers were BHEL (down 2.69%); M&M (down 1.47%); Bharti Airtel (down 1.33%); Siemens (down 0.89%) and Infosys (down 0.84%).
Markets in Asia settled in the green on news that the IMF’s move to expand its lending resources would help nations deal with slowdown attributed to the European crisis. Financial stocks across the region clocked good gains following news that China is likely to allow banks to increase lending in the first quarter in a bid to boost growth.
The Shanghai Composite surged 1.31%; the Hang Seng climbed 1.30%; the Jakarta Composite rose 0.58%: the Nikkei 225 advanced 1.05%; the Straits Times rose 0.57% and the Seoul Composite settled 1.19% higher. Bucking the trend, the KLSE Composite shed 0.04% today. The Taiwanese market was closed for trade today. At the time of writing, the key indices in Europe were trading in the positive and US stock futures were flat.
Back home, foreign institutional investors were net buyers of equities amounting to Rs875.85 crore on Wednesday. On the other hand, domestic institutional investors were net sellers of shares totalling Rs590.27 crore.
Technology firm Take Solutions today released its web-based solution suite ‘PharmaReady 5.0’ for use by life science organisations for faster regulatory approvals of their new products. The product has a record of 100% submission acceptance by the regulatory authorities, the company claimed. The stock declined 4.08% to close at Rs24.70 on the NSE.
Satyam Computer Services, now Mahindra Satyam, on Wednesday said a US court has dismissed a lawsuit filed against the company by Upaid following the settlement between the two. The settlement included taxes, compliance costs, attorney’s fees and expenses and the settlement is exclusively for and on behalf of the company. Satyam rose 0.91% to Rs72.10 on the NSE today.
Somany Ceramics is eyeing the US, UK and European markets for exports. The company, which already exports its products to East and West African countries and the Middle East, is looking at new markets overseas. The scrip jumped 7.40% to Rs39.20 on the NSE.
The MLM company lured investors from several states by promising unusual high income on investing or buying gold products and further enrolling more people
Following the crack down on various multi-level marketing (MLM) companies in Rajasthan, another case Swarna Labh Tradelink has come to light. The MLM company had allegedly duped a number of investors not just from Rajasthan but also from other states like Orissa, Punjab and Maharashtra.
The company, selling gold jewellery, promised income on investing or buying its gold product and further enrolling more people in it. Initially it paid the promised amount. However later the cheques issued by Swarna Labh started bouncing.
One of the investor who is expecting more than Rs2.75 lakh from the company told Moneylife that, “Swarna Labh Tradelink has fraudulently collected multi crore rupees from Orissa, Punjab, Rajasthan, and Maharashtra. They have issued cheques, most of which have bounced. They are not even responding to our calls.”
Swarna Labh came under the scrutiny of Jaipur police, while investigating another ponzi scheme, Gold Sukh. According to a news report, while investigating the multi crore Gold Sukh scam, Rajasthan police raided the offices of other MLM companies including Swarna Labh which had business model similar to Gold Sukh, even as there were no formal complaints filed against them.
In November last year, Gold Sukh hit headlines after it allegedly duped 1.75 lakh investors for more than Rs300 crore. Gold Sukh promised returns 27 times than the investment in just 15 months and was able to lure many politicians, police officers and businessmen. The Jaipur police are probing the scheme and had also issued a Red Corner Notice, through Interpol, against directors of Gold Sukh, who are absconding.
Meanwhile there few other complaints posted on the discussion forums on the Internet. “I am also a member of Swarna Labh and this is a purely a fake company. I have invested my hard-earned money 2 years back and received only 4% of the invested money. I have done many follow up but they told me that now that plan has been scrapped and company doesn’t have fund. However they assured me that they will return my invested amount. Accordingly, he sent me a cheque of my invested money. But it bounced,” reads one such complaint posted on Consumercomplaints.com.
Swarna Labh promised around 25% monthly income, 10-20% binary income, apart from income guaranteed on reference. Recently Moneylife reported that police from the Bhilwara district are investigating lot of MLM schemes offering investment and high returns on gold, while others are selling some kind of products.
Here is a list of 19 people whose cheques, issued by the company, bounced.