Sebi, has unearthed a nexus between some mid-cap companies and stock market operator

The Securities & Exchange Board of India , or Sebi, has unearthed a nexus between some mid-cap companies and stock market operators who rigged the share prices of these firms ahead of convertible bond issues and private placements to institutional investors .

Late on Thursday, the regulator barred the promoter groups of Murli Industries, Ackruti City, Welspun Corporation and Brushman India from dealing in their shares till further notice, for colluding with share trader Sanjay Dangi and his associates, and the Ashika Group in rigging the stock price of their respective companies. Sanjay Dangi and his group of investment arms, and the Ashika group of firms too have been banned. Ackruti City Managing Director Vimal Shah said he would challenge the Sebi order.

Shares of Murli Industries, Brushman India were trading lower on Friday. Welspun Corp tanked 27 per cent while Ackruti City tumbled by 19.99 per cent to a record low of Rs 307.90, hitting a lower circuit on BSE. Murli Industries saw a steep decline of 19.99 per cent while Brushman India counter dropped by 4.96 per cent in the early trade on BSE.

ET had reported on December 2 that the Intelligence Bureau had information about Sanjay Dangi manipulating share prices of mid-cap companies, including Welspun, in connivance with the promoters. Dangi is a comparatively new name in the club of Dalal Street operators who specialise in rigging stock prices of mid and small-cap companies . “... the Dangi group successfully offers its services for a commercial consideration,” said Sebi. The stock exchanges have been ‘advised’ by Sebi to enable squaring off the derivative positions of all these entities.

Barring Welspun, none of the other three companies is eligible for derivatives trading. December futures of Welspun Corporation closed at 220 on Thursday, a premium of 1.50 to the cash market price. The modus operandi in each instance was the same. The companies would have a set of investment arms, which would sell shares to various entities controlled by the Dangi group.

This cartel would then push up the stock price by buying some more shares from the market, and at the end of the operation, sell the shares back to the company’s investment arms. The profits would be shared by the Dangi group and the companies. The Dangi group entities traded through a large number of stock brokers, primary among them being Ashika Stock Broking, Sanchay, Systematix Shares & Stocks and Anand Rathi Financial Services.

In the case of Murli Industries, the company had raised $23 million through foreign currency convertible bonds (FCCBs ) in February 2007, with a conversion price of 565. An FCCB holder has the option of converting the bonds into shares anytime during the tenure of the bond. But he will do so only if the conversion price is below the stock market price.