JM Financial Assures Full Cooperation With SEBI Amid Debt Securities Probe

In its interim order on Thursday, SEBI stated that JM Financial may continue to serve as a lead manager for ongoing mandates concerning the public issue of debt securities for 60 days

Additionally, the regulator will conduct an inquiry into these matters, which is expected to be finalised within six months

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JM Financial Ltd has affirmed its commitment to full cooperation with the capital market regulator Securities and Exchange Board of India (SEBI), regarding the investigation into the public issue of debt securities. This declaration follows SEBI's decision to prohibit JM Financial from accepting new mandates to serve as a lead manager for such public issues due to regulatory violations. However, in its interim order on Thursday, SEBI stated that JM Financial may continue to serve as a lead manager for ongoing mandates concerning the public issue of debt securities for 60 days.

Additionally, the regulator will conduct an inquiry into these matters, which is expected to be finalised within six months. Responding to the directive, JM Financial stated in a filing to the stock exchanges, "The company shall fully cooperate with SEBI in this investigation.”

SEBI's directive was issued shortly after the Reserve Bank barred JM Financial Products Ltd from extending any form of financing against shares and debentures, including the approval and disbursement of loans against initial public offerings (IPOs). The regulatory action followed a routine examination conducted by SEBI on the public issuances of Non-Convertible Debentures (NCDs) in 2023.

The investigation primarily scrutinised the activities of JM Financial and its affiliated entities in specific debt issuance. In its interim order, SEBI described the management of subscriptions in this public debt offering as "shocking". It noted that the transactions at each stage of the issuance appeared to have been conducted in a predetermined and calculated manner, executed meticulously to ensure subscription and success.

"The regulator noted that notice (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 stated.

Upon initial examination, it is observed that the scheme entailed encouraging individual investors, who might not have otherwise participated in the offering, to submit applications by providing funds and ensuring them a profitable exit on the listing day.

Although the regulator scrutinised the operating method in one instance, the bank records of investors, managed through Power of Attorney (PoA) by JM Group entities, indicate that this approach is prevalent in many public offerings. SEBI remarked that the transaction patterns evident in the bank statements indicate that this is not an isolated occurrence.