Exposing manipulative accounting adopted by Brightcom Group Ltd (BGL) and its promoters and directors, market regulator Securities and Exchange Board of India (SEBI) issued an interim order cum show cause notice to them. SEBI also barred the company's promoter and chairman and managing director (CMD) M Suresh Kumar Reddy, whole-time director and promoter Vijay Kancharla, independent director and group chief financial officer (CFO) Yerradoddi Ramesh Reddy and CFO Y Srinivasa Rao, from offloading or disposing of their shareholding in the company.
In a hard-hitting order, Ashwani Bhatia, a whole-time member (WTM) of SEBI, says, "The scale of fraud is indeed large. The noticees attempted to camouflage accounting entries in excess of Rs1,280 crore during FY18-19 and FY19-20 to give a distorted picture of the company's financial position. By all yardsticks, the accounting shenanigans and dubious accounting practices, which the noticees resorted to, were to mislead investors."
"The fact that the promoters gave themselves preferential allotment of shares which led to them increasing their shareholding from 3.51% to over 18.47% after the start of the SEBI investigation speaks volumes of their intent to mislead and their brazen approach towards self-enrichment. Further, considering that the scrip of BGL is currently trading at around Rs16.23 (closing price at BSE on 12 April 2023), there is a real risk that the promoters may offload their shares and exit the company. It is thus imperative that the promoters be restrained or prohibited from offloading/ disposing of their shareholding in the company having regard to their conduct in these proceedings," SEBI says in the order.
The SEBI WTM says the noticees have conducted their affairs to manipulate financial statements in flagrant violations of all canons of corporate governance. "...to protect the interests of shareholders of the said company and that of other investors and the integrity of the securities market, I, in exercise of the powers conferred upon me under Sections 11, 11(4) and 11B(1) read with Section 19 of the SEBI Act, 1992 hereby issue by way of this interim order cum show cause notice, FY14-15 to FY19-20, with a special focus on impairment of assets, so as to ascertain possible violations."
SEBI investigation also revealed that P Murali & Co, who audited the financial statements of BGL between FY14-15 to FY16-17 and did not qualify the audit report in respect of the non-compliances, was again appointed as statutory auditor for five consecutive years during the company's annual general meeting held on 30 September 2022.
The WTM directed the company CMD M Suresh Kumar Reddy, whole-time director and promoter Vijay Kancharla, independent director and group CFO Yerradoddi Ramesh Reddy and CFO Y Srinivasa Rao not to sell or dispose of or dilute their (direct/indirect) shareholding in the company until further orders.
Brightcom Group is asked to carry out the accounting impact of rectification of non-compliance. "BGL shall further ensure that the said statement of the impact of non-compliance is certified by a peer-reviewed chartered accountant (CA), other than the statutory auditor, who had audited at least one company forming part of NIFTY 100 or S&P BSE 100 indices during the past three years."
Within seven days, the company is directed to publish a correct statement of its shareholding for all quarters in which the market regulator observed an incorrect shareholding pattern.
SEBI also asked Brightcom Group to appoint, within 15 days, at least one independent director on the company board. Also, within 15 days, the company is required to submit standalone financial statements for each of its subsidiaries from FY14-15 to FY21-22.
The market regulator asked National Stock Exchange (NSE) to monitor the compliance with its directions by the company and file a detailed report periodically.
Brightcom is in the business of ad tech, new media and digital advertising and has subsidiaries and operations in various geographies, including in the US, Israel, Latin America, Western Europe and Asia Pacific regions. The company is headquartered in Hyderabad. As per the company's annual report for FY19-20, it has two Indian subsidiaries and 14 overseas subsidiaries.
The present promoters of the company had taken over the erstwhile listed company, Lanco Global Systems Ltd, and amalgamated it with an unlisted company, Ybrant Digital Ltd, through a scheme of amalgamation approved by the High Court of Andhra Pradesh dated 11 April 2012. Pursuant to the same, the company's name was changed from LGS Global Ltd to Ybrant Digital Ltd on 14 June 2012. Later, the company's name was changed to Lycos Internet Ltd on 7 October 2014 and to Brightcom Group Ltd on 5 September 2018.
