On the day of the listing, 17 October 2011, and the days subsequent to listing, the OCAL scrip was trading in an anomalous fashion, when it shot up from Rs115 to Rs198. SEBI had discovered that OCAL had manipulated its share price by diverting the IPO proceeds through structured layers of middlemen and entities

Onelife Capital Advisors (OCAL) is a Securities and Exchange Board of India (SEBI)-registered merchant banker, portfolio manager as well as stock broker. OCAL as well as Atherstone Capital Markets (ACM), its merchant banker, were barred by SEBI from the participating in the market on 28 December 2011, for glaring irregularities and non-compliance of SEBI regulations.

OCAL raised Rs36.85 crore through an initial public offering (IPO) of 33.50 lakh shares at Rs110 per share. The company planned to spend the proceeds for the purpose of developing its portfolio management business (Rs11.57 crore) as well as setting up corporate offices around the country (Rs8.97 crore). The remaining amount was earmarked for ‘general corporate expenses’, brand building and meeting expenses of the issue.

On the day of the listing, 17 October 2011, and the days subsequent to listing, the scrip of OCAL was trading in an anomalous fashion, when the price shot up from Rs115 to Rs198. SEBI decided to investigate into the matter. The regulator had discovered that OCAL had manipulated its share price by diverting the IPO proceeds through structured layers of middlemen and entities.

Most notably was the fact that the 7.28% of the IPO proceeds went to 80 retail allottees and two NIIs, all of whom shared the same postal addresses as well as shared the same bank branch—Bank of India, Panchnath branch situated in Rajkot. There were also related to each other one way or another. Incidentally, one broker—ANS Pvt Ltd shared the same address, as well. However, investigations are on to ascertain whether ANS Pvt Ltd had any role in this scam.

The company had flouted SEBI regulations for failing to put up a public notice for convening a board meeting it held just after filing the Red Herring Prospectus (RHP) i.e. 21 September 2011 but before the IPO date (12 October 2011). As per regulations, any such events before the IPO must be conveyed to the general public.

Thus without notifying the public, OCAL had convened a board meeting to raise as much as Rs11.50 crore in short-term loans from Prudential Group of Companies, Kolkata, towards obligations to two defunct and non-existent companies namely, Fincare Financial and Consultancy Services (FinCare) and Precise Consulting Engineering Pvt Ltd (PreCons), for availing of their ‘services’ towards development of PMS business. Moreover, after the IPO, an amount of Rs2.5 crore was immediately transferred back to Prudential Group in a circuitous manner. What is shocking here is the director of one of the Prudential Group of companies was arrested by CBI in 2003 for siphoning off funds from Bank of Rajasthan. Further, the entities of Prudential Group were implicated by SEBI in the past, for violations of disclosure and insider trading norms. ACM did not take any measures to follow up on the events of the company post RHP.

When probed further, SEBI found out that FinCare and PreCons, according to the memorandum of understanding (MoU), had “excellent track record”.  However, past records show otherwise. FinCare had been punished on 7 February 2011 by SEBI for executing synchronised deals with Sparc Pesticides Pvt Ltd and creating artificial volumes in Jindal Stainless Steel. Further, it found out that PreCon was a ‘bankrupt’ entity without any records filed with ROC (Registrar of Companies) in the last three years. Moreover, when SEBI tried to contact these entities, it found out that the addresses provided by FinCare and PreCons in the MoU, were either locked out, vacant or non-existent. In other words, the addresses were provided out of thin air.

The funds received by FinCare and PreCon, from OCAL, were shamelessly transferred to five Surat-based entities which were not part of the securities business. What is worse was that the bank accounts of most of these Surat-based firms were opened as recently as October 2011 and were closed immediately after the funds were further siphoned out to various other entities.

OCAL had used the garb of loans from and to Prudential Group, which in turn transferred large amounts of money to entities that had bought heavily during the IPO and in the next few days after the IPO, in an apparent act to bid up the stock price. The entities had received funds from “Sardhav Investment and Finance Pvt Ltd” which in turn had received funds through various bank accounts from the Prudential Group.

In a twist to this IPO scam, it was discovered that OCAL indirectly ended up receiving funds from another IPO scamster, RDB Rassayans, through an entity called Namokar Duplicating Pvt Ltd who in turn financed Prudential Group, to the tune of Rs7.06 crore. Incidentally, RDB Rassayans is the seventh and final company in the IPO series being covered by Moneylife.
The chart below illustrates the manner which the IPO proceeds were diverted by OCAL (Source: SEBI)

A part of the IPO money was brazenly diverted to friends and group companies of OCAL and its promoters. The amount of Rs7 crore which was supposed be paid to Masala Gruh Properties Pvt Ltd for setting up a corporate office was cancelled after the filing of the RHP and, instead, paid to FinCare for the same purpose. FinCare then diverted the Rs7 crore Onelife Gas & Energy Infra Ltd and Shalini Patildar, who was a friend of OCAL managing director, Pandoo Naig.

Incidentally, Mr Naig had received a tax notice of Rs17.58 crore, and the same was mentioned in the prospectus under the ‘Risk Factors’ section. However ACM failed to query this aspect and instead signed off the prospectus as though this was not a big deal. Why such casual behaviour?

Prior to the issue, the promoters of the company boosted OCAL’s net-worth from a mere Rs1 lakh to Rs10 crore, within a space of three years. While this is legal, it is alarming to note that they had possibly misappropriated company money for their own benefits by transferring the same funds brought by them to separate entities owned by them. ACM hadn’t ascertained the genuineness and motive of these transactions. If we take this into consideration, the net-worth would be less than Rs10 crore thereby rendering OCAL ineligible for IPO.

SEBI has ordered OCAL to recall all the IPO proceeds it had diverted to FinCare and PreCons, and deposit the same into an escrow account. As usual, the investors will not be getting back their hard-earned savings.