JM Financial Ltd has affirmed its commitment to fully cooperate with the Securities and Exchange Board of India (SEBI) as the regulator probes into the public issue of debt securities. SEBI’s move comes after it barred JM Financial from taking on new mandates as a lead manager for such issues due to alleged violations of regulatory norms.
While JM Financial can continue to fulfill existing mandates as a lead manager for the next 60 days, SEBI has initiated an investigation, aiming to conclude within six months. In response, JM Financial stated in a filing to the stock exchanges that it would cooperate fully with SEBI throughout the investigation process.
This directive from SEBI follows the Reserve Bank of India’s recent prohibition on JM Financial Products Ltd from providing any form of financing against shares and debentures, including loans against initial public offerings (IPOs).
SEBI’s scrutiny stemmed from a routine examination of Non-Convertible Debentures (NCD) public issues in 2023, focusing on JM Financial and its related entities. In its interim order, SEBI expressed dismay over the handling of subscriptions in a specific debt issue, describing the manner as “shocking.”
SEBI highlighted concerns that JM Financial and its connected entities allegedly provided an assured exit to certain investors at a profit, potentially incentivizing them to participate in the public issue in violation of regulatory mandates.
The scheme under scrutiny reportedly involved enticing individual investors, who might not have otherwise participated, by not only providing funds but also assuring them of a profitable exit on the listing day.
While SEBI’s investigation initially focused on one case, examination of investors’ bank statements operated through Power of Attorney (PoA) by JM Group entities suggested a broader pattern across multiple public issues.
SEBI emphasized that the observed transaction pattern indicated a systemic issue rather than an isolated incident, prompting a comprehensive investigation into the matter.