Sebi steps up watch on window dressing to pump and dump stocks

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Mumbai: The Securities and Exchange Board of India (Sebi) has beefed up its surveillance on companies indulging in window dressing to pump and dump stocks. The capital markets regulator has asked stock exchanges to keep a close watch on any misstatement in financial results, sudden change in accounting policies, resignation of key managerial personnel, sharp jump in profits ahead of fundraising or any other corporate announcements meant to push up the stock prices, said three people familiar with the development.

Earlier this year, Sebi set up a separate vigilance cell, called Corporation Finance Investigation Department, to tackle such cases. Now, with economic activity picking up and several penny stocks in the thick of action, the market watchdog has stepped up its scrutiny.

Sebi met stock exchange officials earlier this week to monitor company activities.

“Several smaller companies are suddenly reporting huge growth in revenues and profits to manipulate stock prices,” said a person aware of the development. “Now a separate team from Sebi and stock exchanges will monitor the financial statements, guidance, and other corporate announcements.”

An email query was sent to Sebi and NSE went unanswered. BSE declined to comment.

Apart from investigating misstatement in financial results, Sebi’s Corporation Finance Investigation Department is also responsible for carrying out probes on fraud, diversion, siphoning or misappropriation of funds, fraudulent related-party transactions, and non-compliance with objects of the issue of IPO.

An official from one of the stock exchanges said bourses have the mechanism to check and red flag price manipulation.

“We are setting up a new mechanism to monitor the financial misstatement or change in quarterly numbers post publishing the results, etc.,” said the official.

Market participants said companies-mostly smaller – fudge earnings during bull markets to boost stock prices.

“Regulators should strictly monitor corporate announcements and financials of some of the smaller companies that report a sudden increase in revenue and profit numbers,” said Shriram Subramanian, CEO, InGovern Research Services. “With crores of new investors entering the stock markets, fraudsters will try to spread false or misleading information to create a buying frenzy that will pump up the price and then dump shares at the inflated price.”

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