Brightcom shares hit 5% lower circuit for 4th day on leadership exit

Shares of Brightcom Group extended their losing streak for the fourth straight session on Monday, hitting its 5% lower circuit limit, after the crisis-hit company announced major changes in its leadership following a regulatory crackdown by the Securities and Exchange Board of India (SEBI). The company informed exchanges that Suresh Reddy, the chairman & managing director (CMD), and Narayana Raju, the chief financial officer (CFO), have resigned from their posts.

“The board directors of the company has received and acknowledged resignation letters from Suresh Reddy, who was serving as the Chairman & Managing Director (CMD) of the company ….and Narayana Raju, who held the position of Chief Financial Officer (CFO) of the company,” Brightcom Group says in a BSE filing on August 27.

Brightcom informs exchanges that the board of the company has proposed a transition leadership team, with the responsibility of overseeing the leadership transition process. The board also approved the commencement of a search for a CEO and a CFO to ensure the smooth continuation of essential operations.

“The board is committed to managing this leadership transition in a responsible and strategic manner, prioritising effective communication, regulatory compliance, financial stability, and the well-being of the company's employees and stakeholders,” the release notes.

Continuing its losing streak, Brightcom Group shares opened lower and were locked in 5% lower circuit limit at ₹19.72 against the previous closing price of ₹20.75 on the BSE. The smallcap stock has fallen in the last six out of seven sessions and lost 25.5% during the same period. The market capitalisation dropped to ₹3,979 crore.

In a fresh development, the ED has raided five locations in Hyderabad including the office of Brightcom Group, residences of the company’s CEO and CFO, and premises of company’s auditor P Murali Mohana Rao into alleged foreign exchange violation. The federal agency initiated the probe following an investigation by the SEBI regarding the impairment of assets worth ₹868.30 crore by Brightcom Group through its subsidiaries abroad.

The development came days after the market regulator Securities and Exchange Board of India (SEBI) barred Suresh Kumar Reddy and Narayan Raju from holding the position of a director or key managerial personnel in any listed company or its subsidiaries until further orders over frauds and allegedly misrepresenting the financial statements.

"M. Suresh Kumar Reddy, is hereby restrained from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders," according to an interim order issued by SEBI.

The regulator said if he has any open position in any exchange-traded derivative contracts, as of the date of the order, he can close out or square off such open positions in 3 months. He can settle the pay-in and pay-out obligations in respect of transactions, which have taken place before the close of trading on the date of the order.

The market regulator in its order said that veteran investor Shankar Sharma and 21 others also appeared to have received shares in preferential allotment "without making any or partial payments as application money". They have been barred from disposing of shares in Brightcom until further notice.

Recently, an investigation by SEBI found several instances of "accounting irregularities" and misstatements in the financial statements of Brightcom. The SEBI findings show BGL attempted to "camouflage accounting entries" in excess of ₹1,280 crore during FY 2018-19 and 2019-20 to give a distorted picture of its financial position. 

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