Capital market regulator the Securities and Exchange Board of India has banned the promoters and clients of Mega Corporation and brokers from dealing in the company's shares till further direction.
Some of its clients have been banned from dealing in the securities market even, not just in Mega Corporation.
The promoters and the directors of the company which/who have been banned include Crayons Global Finance Ltd, Himanshu Mehta, Vimi Investments and Finance Ltd, Kunal Lalani, Beena Mehta, R N Mehta, Hiten Mehta, Odyssey Corporation Ltd, Pooja Equisearch Pvt Ltd, Kunal Lalani, Hemanshu Mehta, Surendra Chhalani, H M Lalani, N K Nayak, K S Venkataraman, S L Golchha and Sachin Mehra.
Stock brokers - India Bulls Securities, Fortis Securities, Ruchiraj Shares and Stock Brokers (P) Ltd - that made a significant contribution towards the trading volume in the stock have also been directed not to deal in the shares on behalf of the promoters, the directors and the clients who have been barred till further direction.
The order was passed by the Sebi's whole-time member G Anantharaman.
In its preliminary investigation, the market regulator found that the promoters, along with a group of connected clients, ramped up the price of the company stock.
Otherwise, an illiquid stock, the price of Mega Corporation stock moved up sharply from Rs 5.25 to Rs 41.10, representing a rise of around 683 per cent accompanied by an equally sudden spurt in average monthly volume of 1,000 per cent during the January-September 2005 period.
And of this, in the last six months, i.e. April-September 2005 period, collective gross purchases and gross sales of the 'connected clients' represented around 60 per cent of the total market volume.
The Sebi also found that the company announced a change in its main business from 'finance and investments' to 'service-based activities'.
However, majority of its income came from trading in securities. In fiscal 2005, the company earned a profit of around Rs 10.08 crore (Rs 101 million) from Lakshmi Overseas Ltd, Karuna Cables Ltd and IFSL Ltd.
It may be recalled that the Sebi had banned IFSL's promoters and directors from trading in the company's shares last month.
The Sebi order said the extraordinary financial results of the company for the financial year 2004-05 are not the results of its core business activities, but from trading in stocks of small and infrequently traded companies, which could not be ascertained from its public disclosures.
"Disguising the real cause of profit was a crafty way of misleading investors to believe that the profits generated for the year 2004-05 were from their major business activity of Radio Taxi operations," the order said.