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Days after the Reserve Bank barred JM Financial Products from providing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO), capital markets watchdog Sebi barred JM Financial Ltd from accepting new mandates to act as a lead manager for public issue of debt securities. The company has been barred for flouting regulatory norms for 60 days.
But the company can fulfil its role as lead manager for issues it has already been mandated for, the regulator said in its interim order.

The order has come after routine examination by Sebi of the public issues of Non-Convertible Debentures (NCD) during 2023. The investigation focused on the activities of JM Financial and its related entities in a particular debt issue.

“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 incentivising them to apply in the public issue in contravention of the regulatory mandates,” it said.

Further, the regulator will undertake “an investigation into the issues covered under this order. The investigation so undertaken shall be completed within a period of six months”.
JM Financial got individual investors, who would otherwise may not have participated in the issue, to make applications by providing funds to them and also assuring them an exit at a profit on the listing day, Sebi said.

It further said that JM Financial along with others was the merchant banker of the issue.
On further examination of the transactions on the day of listing of the issue, Sebi noted that JM Financial Products

Ltd (JMFPL-NBFC), a non banking finance company, and a subsidiary of JM Financial, acted as a counter party to the trades of these individual investors and had also provided the funds deployed by these investors for subscribing to the issue.

JMFPL-NBFC, subsequently, on the very same day, offloaded at a loss, a significant portion of the securities that it had acquired from these investors to corporate investors.

The examination also revealed that these investors had submitted their applications in the public issue through the stock broker JM Financial Services Ltd (JMFSL-Broker), another subsidiary of JM Financial Ltd.
By indulging in such practices, JM Financial violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules as well as merchant bankers rules.

While the regulator has examined modus-operandi in one case, the bank statements of the investors, operated through Power of Attorney (PoA) by the JM Group entities, suggest that this practice is followed in most public issues.
The pattern of transactions seen in the bank statements suggest that this is not an isolated incident, Sebi said.
(With inputs from PTI)