Market regulator Securities and Exchange Board of India (SEBI) has banned Securekloud Technologies Ltd (STL) and three of its directors from the securities market for one to three years and fined them a total of Rs10 crore for allegedly misrepresenting the company’s financial position.
The SEBI order also prohibits three company directors, Suresh Venkatachari, RS Ramani and Gurumurthi Jayaraman, from being directors or key managers of listed companies or intermediaries for a period of six months to one year. As per the order, SEBI imposed penalties of Rs3 crore each on STL and Mr Venkatachari and Rs2 crore each on Mr Ramani and Mr Jayaraman. They have been directed to pay the fine within 45 days, SEBI said in a final order passed on Friday.
Regulators received complaints in December 2019 alleging financial misreporting/irregularities by STL’s promoters and management, as well as Deloitte’s forensic audit report which found various allegations of fraud in December 2019 Irregularities.
SEBI has since launched an investigation into the company’s affairs from the financial year (FY)17-18 to FY20-21. The broad focus of the SEBI probe aims to investigate how the company’s books were allegedly misreported.
During the investigation, SEBI found STL’s financial statements to have misrepresented that the company’s consolidated revenue had grown exponentially in a short period from Rs271.93 crore in FY15-16 to Rs850.39 crore in FY18-19. Also, once STL stopped registering fictitious revenue (from 2019-20), its revenue fell to Rs386.43 crore in FY19-20.
In addition, the company also increased the size of its balance sheet from Rs44.76 crore on 31 March 2013, to Rs997.99 crore on 31 March 2019, by investing in estimated expenditures on software development.
After impairment and other write-offs, the size of the company’s balance sheet was reduced from Rs997.99 crore to Rs242.82 crore in the single financial year, with Rs755.17 crore wiped from the company’s balance sheet as per the order. As far as misrepresentation is concerned, investors influenced by such manipulated financial statements purchased the company’s shares, thereby misleading the company’s share price, which resulted in the manipulation of STL’s share price.
Accordingly, SEBI directed STL to take steps to bring back or recover Rs3.83 lakh from Mr Venkatachari within a year.
In addition, the regulator found that Mr Ramani and Mr Jayaraman, chief financial officer and chairman of the audit committee, were found to have colluded to make false statements in STL’s books, admitting that the company had misreported revenue and expenses, thereby breaching disclosure lapses.
Further, Mr Ramani had sold/transferred a substantial amount of shares when the stock was trading at very high prices and made huge personal gains at the cost of unsuspecting investors who were enticed to buy shares of the company, which showed that the publication of manipulated financial statements increased revenue and profitability.
“It found STL’s failure to disclose to the stock exchange information regarding SEBI’s initiation of a forensic audit and establishment of STL’s foreign subsidiary, thereby ignoring the wrongdoing of investors,” the order said.
