SEBI bars Brightcom CEO, CFO from company board; stock tanks 5%

The Brightcom Group Ltd (BGL) shares fell 5% lower circuit to hit an intra-day low of ₹23.10 on the National Stock Exchange (NSE) today after the Securities and Exchange Board of India (SEBI) barred the group's chairman and chief executive officer Suresh Kumar Reddy and its chief financial officer 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 says 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 says 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.

"We have submitted all reqd reconciled remittance data to SEBI today, totalling to RS.56.65 Cr for 1.5 Cr shares @ 37.7 RS= 56.65 Cr. Delay was because of bank reconciliation data pending from Co. We look forward to early closure of the matter," Sharma says in a reply on microblogging platform X.

With regards to the need for an interim order, SEBI believes the prima facie observations and findings clearly show the "manipulations" carried out by BGL and 24 other noticees, in respect of BGL’s preferential allotments. This involves "fictitious receipts" of share application money from allottees and "siphoning of funds" from BGL.

BGL brazenly attempted to cover-up its "misdeeds by submitting forged and fabricated bank statements", says SEBI. "The blatant acts of the company and other noticees raise serious concerns about the affairs and also raise doubts as to whether the financial statements and various disclosures made on stock exchange platform or in annual reports in the past are correct or not."

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 FYs 2018-19 and 2019-20 to give a distorted picture of its financial position.

Before this, SEBI had issued an interim order-cum-show cause notice on April 13, 2023, to BGL and others, including Suresh Kumar Reddy. "Considering the new findings as brought out in this Order, it is imperative that the matter is probed thoroughly," says the SEBI order.

The SEBI believes though the investigation examined receipts of consideration from only 22 allottees out of 82 allottees, there is a real possibility the remaining allottees may have received shares in the preferential allotment against payment of no or partial consideration in a similar manner.

Now, a detailed investigation is going on in the matter to unravel the extent of fraud committed. The company and its CMD have resorted to the submission of forged and fabricated bank account statements to mislead the regulator, says SEBI.