Buch Calls Out Misuse Of Money In Some IPO Cases; Says Bankers Should Not get Bad Companies To Markets

Capital markets regulator Sebi's Chairperson Madhabi Puri Buch said on Tuesday that the regulator has found "egregious misuse" of funds that are raised via initial public offerings (IPOs) by certain companies and has urged investment bankers to not bring such entities to the capital markets.

Way before the term "agentic artificial intelligence" was coined, the regulatory body had been working on a tool based on that concept to process IPO documents faster, Buch said.

She said the i-bankers know precisely when they are bringing a "pump and dump" company to the market, while speaking at an event organised by the Association of Investment Bankers of India (AIBI).

"You (i-bankers) should not bring a bad company to the market," she said.

Markers such as high fees being paid to the banker, or the company having less or no staff at all or no visits by the bankers to the facilities of a company, speak loud and clear about the intent behind an issuance and it being a "pump and dump" issue, she added.

While commenting on the SME board, Buch said in the case of a pump and dump issuance, an IPO sees high subscription which leads to the price of a stock going up and is typically followed by a share sale by the promoter to make easy money.

Further, Sebi has also found "egregious misuse" of IPO funds by certain companies, which basically involves related party transactions to route the money to safe havens or entities related to the promoter, Buch added.

Often fund routing is done to overseas markets that would include showing up a front like an acquisition or purchase of intangibles like a software or app, she explained.

Buch also added that there are various reasons why companies are opting to be increasingly compliant, specifying inter-generational shift in ownership as one of the reasons.

Younger promoters who have inherited companies from previous generations are preferring to live life stress-free over fretting about operating in the grey zone, she said.

Additionally, increased surveillance from the regulators and investigation capabilities also deter some of these young promoters, she added.