Sebi to complete probe against JM Financial in 6 months

Sebi interim order on JM Financial: Sebi interim order on JM Financial: Market regulator Sebi said on Thursday, March 7, 2024, that it would complete its investigation against JM Financial in six months. In its interim order, Sebi stated that JM Financial can manage its current debt issue for 60 days.

Sebi has also barred JM Financial from accepting new mandates to act as a lead manager for the public issue of debt securities, for flouting regulatory norms. 

Sebi's order came after the Reserve Bank of India on March 5 barred JM Financial (JMFPL) from giving loans against shares and debentures, including the sanction and disbursal of loans against the initial public offering of shares.

Sebi issued its directive after it examined a routine examination of the public issues of Non-Convertible Debentures (NCD) during the year 2023. The inquiry was focused on JM Financial's and its affiliated companies' actions on a specific debt problem.

Sebi remarked in its interim order that it is shocking how subscriptions have been managed in this debt instrument public offering. Every step of this public offering seems to have been conducted in a planned, premeditated manner, with clinical execution to guarantee subscription and success.

"The regulator noted that noticee (JM Financial) along with its connected group entities were prima facie noted to have given an assured exit to certain investors at a profit, thereby incentivizing them to apply in the public issue in contravention of the regulatory mandates," it said. It also stated that JM Financial was the issue's merchant banker, along with a few others.

Following a closer look at the transactions on the day the issue was listed, Sebi discovered that JM Financial Products Ltd (JMFPL-NBFC), a nonbanking finance company and a division of JM Financial, had both supplied the funds used by these investors to subscribe to the issue and functioned as a counterparty to their trades.

Subsequently, JMFPL-NBFC offloaded a sizable amount of the securities it had bought from these investors to corporate investors that same day, although at a loss.

After further investigation, it was discovered that these investors applied for the public issue via JM Financial Services Ltd ( JMFSL-Broker), a JM Financial Ltd. subsidiary that acts as a stock broker.

JM Financial broke both merchant bankers' rules and the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules by engaging in such actions.

While the regulator investigated modus operandi in one case, the bank statements of investors, operated through Power of Attorney (PoA) by JM Group entities, indicate that this practice is followed in the majority of public offerings. According to Sebi, the transaction pattern found in the bank statements indicates that this is not an isolated incident.

JM Financial Share Price

The stock of JM Financial ended the trading session on Thursday up by 3.12 per cent, or Rs 2.66, at Rs 87.94. 

With inputs from PTI