JM Financial’s Cooperation with Sebi Investigation

JM Financial Ltd has pledged its full cooperation with the Securities and Exchange Board of India (Sebi) as it delves into the public issue of debt securities. This assurance follows Sebi’s decision to bar JM Financial from accepting new mandates to serve as a lead manager for such public issues due to regulatory violations.

Continuation of Existing Mandates

Despite the prohibition, Sebi has granted JM Financial a 60-day window to continue as a lead manager for ongoing mandates related to public issue of debt securities. This interim order was issued by Sebi on Thursday.

Investigation Timeline

Sebi’s investigation into the matter is expected to conclude within six months. JM Financial, in response to the regulatory action, affirmed its commitment to fully cooperate with Sebi during the investigation process, as stated in a filing to the stock exchanges.

Regulatory Scrutiny Intensifies

Sebi’s directive comes shortly after the Reserve Bank of India (RBI) barred JM Financial Products Ltd from offering any form of financing against shares and debentures, including loans against initial public offerings (IPOs).

Focus of Investigation

The scrutiny stems from Sebi’s routine examination of public issues of Non-Convertible Debentures (NCDs) in 2023. Sebi’s interim order highlighted concerns over the management of subscriptions in a particular debt issue, describing the practices observed as “shocking.”

Allegations of Pre-Meditated Practices

Sebi’s preliminary findings suggest that transactions related to the public issue were meticulously orchestrated to ensure subscription and success. The regulator alleges that JM Financial and its connected entities provided an assured exit to certain investors at a profit, incentivizing their participation in violation of regulatory norms.

Prima Facie Evidence

According to Sebi, the scheme involved persuading individual investors, who would not have otherwise participated, to apply for the issue by assuring them a profitable exit on the listing day. The examination of bank statements operated through Power of Attorney (PoA) indicates a recurring pattern across various public issues, hinting at systemic irregularities.

Ongoing Scrutiny

While Sebi has analyzed the modus operandi in one instance, the regulator notes that similar practices may extend to other public issues, as evidenced by the patterns observed in investors’ bank statements.

As regulatory scrutiny intensifies, JM Financial’s cooperation with Sebi’s investigation will be crucial in uncovering the extent of the alleged irregularities and ensuring adherence to regulatory standards in the capital markets.