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This is known that unlisted companies are used to make black
money white. But listed firms too are used for exactly this
purpose.
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How shares in listed firms are used to
convert black money into white
READ MORE ON Sunday ET | Prashant Kumar Thakur | money laundering | Income Tax | Chartered Accountant |
capital investment | BSE
In April last year the shares of a company
called Global Securities, listed on the
Bombay Stock Exchange (BSE), were
trading in a band of Rs 15-25 a share.
Daily volumes during the month varied
wildly from a few hundred shares, to a
few lakh. The company's net profit in
2012-13 was to the tune of around Rs 3.9
lakh.
Between April 2012 and March 2013, the
price of the stock rose slowly but steadily.
It peaked at Rs 151 per share in early
March 2013 before falling sharply. Between
late May and December, volumes in the
stock averaged a few hundred to a few
thousand a day. From January onwards,
volumes soared to as much as a few lakh
shares before dropping steeply after April 1
this year.
Global Securities, along with two other companies also listed on the BSE, Finalysis
Credit and Guarantee and Aricent Infra, are the subject of a recent complaint to the BSE
that claims that the shares of these companies were traded in a way as to enable
brokers to convert client funds from black to white. ET Magazine approached each of the
companies asking for a response. Finalysis managing director Sajjad A Qadir said: "Yes
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we are aware of complaints. We are conducting an inquiry and the authorities too are
investigating the matter."
A compliance officer of Aricent infra responded: "We have not yet received intimation of
any such complaint by the BSE authorities nor we have received any such complaint at
our end. We will certainly look into the matter at our end." Communications to the official
email IDs of Global Securities and follow-up calls to officials did not elicit a response.
In response to a questionnaire, BSE responded: "The exchange routinely receives
various letters/complaints on various scrips ... wherever warranted [it] conducts the
necessary analysis/ investigation... The exchange does not comment on the status of the
investigation of individual cases."
Regulators could well find that trading in stocks of these companies was legitimate, and
that they were not used by operators to launder funds. But complaints about
manipulation of stocks, many of them 'penny' stocks, to enable conversion of black
money into white are hardly new. Here's how shares in listed companies are used for
conversion:
Black Listing
While there are various ways in which this is done, the basic principle arises from the
fact that under Indian tax law, long-term capital gains on listed equity shares (capital
gains when there is at least a year's gap between the time a share is bought and when it
is sold) is tax-free.
A broker and his client could strike a deal whereby the broker sells shares in a penny
stock to his client for a low price, say a few rupees. The catch here is that the contract
note issued to the client is backdated to a year earlier. In the interim, the broker has
manipulated the price of the stock up through circular trading two or more brokers
circulate the stock between them each selling at a higher price than earlier.
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As a shareholder of a number of companies, i know there are manipulations galore
indulged in by brokers particularly not so well-known ones when they want to oblige their
rich clients who are always on the look-out of opportunities to turn their black money into
white. As a rule, the bank entry of the client's bank account can be checked to know when
the shares were actually bought. Stern action should be taken against those brokers who
issue back dated purchase contracts to their clients. Such brokers should be blacklisted
and not allowed to do trading on the bourses. Penny stocks of dubious companies come
handy for the investors out to turn their black money into white. The prices of such stocks
are manipulated, taken to the new highs so that gullible investors should take a fancy to
them and buy them in the secondary market enabling the black-money for white-money
investors to make a killing and exit by selling their shares. SEBI should not allow such a
thing under any circumstances.
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New lessons to be learnt...
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The present Rupee fall and Gold imports seems to be part of the bigger plan to convert the
cash into a/c so that the losses as mentioned in the article can be brought into the A/c
books for comforts of the owners This article highlights many a loopholes which the
Authority should seal sooner and sentence the offenders severely to deter others to do the
same
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shares are used to convert black money into white and vice versa.
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Interesting Information how the share/stock price is inflated to convert black money into
white.
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A proper Probe is required in this case......there were a lot of cases in past as well but
nothing happened......SEBI is too busy with Sahara
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when there are strict controls , the market moves down. which may be good in long run.
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Innovative ways to convert black to white. But with little regulatory supervision this can be
solved. What exactly SEBI doing then?
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Surveillance department of stock exchanges should look into a financial year's
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transactions (preferably including 3 months on either side of financial year , ie. 18 months )
and identify if five levels of changing hands are identical and whether they are regular
investors or not and if so bar them from trading. This way circular trading may easily be
detected.
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This is the cause of concern as there is no sever punishment for such schemes. BSE is
waiting for complaint and SEBI is sleeping.
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good info
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Don,t preach to convert black to white ,we have enough problems , people will take
reverse course and start converting white to black faster
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good information
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Do you have black money, Income tax department will corner you.
People don,t have enough to survive
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It is not easy. You should have black money to do it.
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There are way too many loopholes and the regulator is totally ineffective. This is why
Indians are able to hold so many accounts in Tax-havens abroad to stash away their black-
money.
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