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March 8, 2024

SEBI Prohibits JM Financial as Lead Manager Amidst Allegations of Irregularities in Public Debt Issues

The Securities and Exchange Board of India (SEBI) has taken decisive action against JM Financial, barring the financial firm from serving as a lead manager for new public debt issues following revelations of irregularities. The regulatory body’s move comes in response to alleged discrepancies and inter-group transactions uncovered during a routine examination of public Non-Convertible Debentures (NCDs) issued in 2023.

According to SEBI’s order, JM Financial will no longer be authorized to act as a lead manager for any forthcoming public debt issues. However, the company has been granted a temporary reprieve to continue managing existing debt public issue mandates for the next 60 days.

JM Financial has been given a 21-day window to file its response or objections to the allegations leveled against it, including the option for a personal hearing. Concurrently, SEBI will conduct a thorough investigation into the matter, with the aim of completing it within six months.

The examination conducted by SEBI revealed concerning practices surrounding a November 2023 public debt issue where JM Financial Ltd (JMFL-MB) served as the lead banker. Notably, the investigation uncovered the involvement of various JM Group entities throughout the transaction process. This included JM Financial Services, a wholly-owned subsidiary, acting as the broker, and another subsidiary, JM Financial Products (JMFPL-NBFC), serving as the funding arm.

SEBI’s findings suggested a coordinated effort within the JM Group to manipulate the market, with JM Financial Products allegedly playing a role in funding investors and subsequently offloading the entire allotment on the same day, resulting in losses. The regulator highlighted discrepancies between the data provided by JM Financial and exchange data, questioning the company’s trading decisions and the apparent disregard for regulatory restrictions.

In response to JM Financial’s arguments claiming individual compliance with legal requirements, SEBI condemned the collective actions of the group, asserting a blatant disregard for regulatory restrictions on providing incentives to investors. The regulator characterized the series of transactions as meticulously planned and executed, aiming to circumvent legal constraints.

Furthermore, SEBI’s investigation uncovered broader irregularities in public issues, including disproportionate loans extended based on declared income, date mismatches, and lack of upfront margin receipts from certain applicants. These practices were not isolated incidents but rather systemic issues prevalent across multiple public issues.

The matter involving JM Financial Products, identified as a Non-Banking Financial Company (NBFC), was also brought to the attention of the Reserve Bank of India (RBI). The RBI imposed restrictions on JM Financial Products, prohibiting the sanctioning and disbursal of loans against Initial Public Offerings (IPOs) and debenture subscriptions while allowing continued servicing of existing loan accounts through standard collection and recovery processes.

Additionally, SEBI disclosed ongoing examinations into irregularities in the Small and Medium Enterprises (SME) segment of the National Stock Exchange (NSE). Instances of oversized bids and multiple applications from the same Permanent Account Number (PAN) raised suspicions of market manipulation, prompting SEBI to refer the matter to the RBI for further investigation.

In light of these developments, SEBI’s regulatory actions underscore the importance of maintaining integrity and transparency in the financial markets, with a focus on upholding investor protection and market fairness.

 

Jhumpa Lahiri

Jhumpa Lahiri

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