JM Group Entities Pay Rs.3.9 Crore To SEBI; Settle Regulatory Lapses Case

JM Group Entities Pay Rs.3.9 Crore To SEBI; Settle Regulatory Lapses Case

The regulator alleged that they gained Rs.1.99 crore by dealing in 11.34 lakh NCDs

JM Group entities, JM Financial Ltd (JMFL), JM Financial Services Ltd (JMFSL) and JM Financial Products (JFP) have settled the matter with the Securities and Exchange Board of India (SEBI) by paying Rs.3.92 crore. This was for alleged irregularities in managing the public issue of non-convertible debentures (NCDs) of Piramal Enterprises in 2023.

Additionally, JMFL and JMFSL disgorged illegal gains of Rs.1.22 crore and Rs.1.33 crore, respectively, after the market regulator passed a settlement order.

Meanwhile, JMF has also agreed to a voluntary three-month debarment from acting as a manager in any public issue of debt securities. Similarly, while JMFSL will refrain from acting as a distributor in issues, JMPL accepted a three-month ban on undertaking IPO financing activities.

During the examination of a public issue of Piramal, SEBI observed that a significant number of individual investors sold the debt securities allotted to them on the day of listing. As a result, the retail ownership came down drastically.

Thus, SEBI passed an interim order on 7 March 2024, against JMFL, which acted as one of the lead managers to the issue of NCDs of Piramal, barring it from taking any new mandates. Thereafter, on 20 June 2024, the regulator passed a confirmatory order, confirming the directions that JMFL would not act as a lead manager in any public issue of debt securities till 31 March 2025.

The regulator, meanwhile, probed the matter, noting that the applicants allegedly devised a scheme wherein the NBFC arm of the JM Financial Group Ltd (JMFPL) used the Power of Attorney and submitted bid applications for 11.34 lakh NCDs, on behalf of 1,008 applicants, in the public issue of Piramal.

These applicants were also clients of the stockbroker JMFSL, which provided loans to them at an interest rate of 10 percent to apply for the NCDs, which carried coupon rates of 9 percent, 9.05 percent and 9.35 percent.

After the allotment, JMFPL purchased 11.34 lakh NCDs allotted to the 1,008 applicants on the listing day on 7 November 2023, at a pre-determined price, higher than the sale price of the trades executed by JMFPL on the same day.

While JMFPL offloaded the NCDs at a loss, it provided a guaranteed exit with profits to all applicants by purchasing NCDs at a predetermined price on the listing day.

Hence, the applicants, JMFL, JMFSL and JMFP, allegedly engaged in an unfair trade practice wherein the three entities connived to provide a guaranteed exit at profit to the applicants on the listing day. This was achieved by sharing part of the commission, brokerage, or incentives received from the issuer.

SEBI alleged that the applicants gained Rs.1.99 crore by dealing in 11.34 lakh NCDs.

However, on receiving the payments from the JM Group entities, SEBI ordered, “Any proceedings that may be initiated for the violations are settled in respect of the applicants.”

The entities had proposed to settle the case of alleged violations "by neither admitting nor denying the findings of fact and conclusions of law," under the settlement norms.