The Securities and Exchange Board of India (SEBI) has issued an interim order cum show cause notice against Hyderabad-based digital advertising firm Brightcom Group and its directors for allegedly committing accounting fraud and manipulating the company's financial statements.
The market regulator said that the company attempted to camouflage accounting entries in excess of ₹1,280 crore during 2018-19 and 2019-20 to give a distorted picture of its financial position.
These non-compliances have resulted in an understatement of expenditure, and hence, the overstatement of profits during each of the financial years during the investigation period, SEBI says, adding that the scale of 'fraud' is indeed large.
By all yardsticks, the accounting shenanigans and dubious accounting practices were to mislead investors, the market watchdog says.
SEBI noted that the company's promoter group has directly benefited as a result of the manipulation of financial statements.
In FY22, Brightcom Group made preferential allotment of equity shares to 79 allottees and raised ₹836.38 crore. SEBI says these allottees included four entities that subsequently became part of the promoter group. However, prior to the preferential allotment, the promoter group had sold shares when the average price of the scrip was much higher than the effective allotment price, the regulator says.
"Considering the same, it is apparent that the above mentioned increase in shareholding by the promoters was achieved at price far below the prices at which the promoters had offloaded a large percentage of their shareholding through a purported pledge," it adds.
It is clear the promoter group entities, by offloading their shares in BGL throughout the investigation period and increasing their shareholding after the investigation period at a much lower price, have directly benefited themselves from the said violations, according to SEBI.
The market regulator further notes that the Brightcom Group concealed the correct shareholding pattern during the investigation period, when the promoters were off-loading shares, thereby keeping public shareholders in the dark about a reduction in their shareholding.
"Thus, the picture that emerges is that of a corporate entity that does not hesitate to bend rules and give a rosy and distorted picture of its true self to investors to benefit its promoters. The fact that the promoters gave themselves preferential allotment of shares which led to them increasing their shareholding from 3.51% to over 18.47% after the start of the SEBI investigation speaks volumes of their intent to mislead and their brazen approach towards self-enrichment," says SEBI.
According to the regulator, this acted as a scheme against ordinary investors, who were influenced into making their investment decisions based on inflated profits reported by the company and the incorrect shareholding pattern of promoters filed by the company with the stock exchanges.
From the very start, the company resorted to delaying tactics, so that the investigation process got stalled, says SEBI.
