Is Brightcom Group a Good Company?
The Brightcom Group Saga, once marked by soaring stock prices from Rs 4 in June 2021 to a peak of Rs 117 in December 2021, took a tragic turn. The narrative unfolded as hidden truths came to light, triggering a sharp decline in the stock value. Subsequently, the unraveling of long-kept secrets played out, concluding the saga on a somber note. Brightcom group was not a multibagger. Hyderabad-based Brightcom Group Ltd, formerly Lycos Internet, is under SEBI scrutiny for financial irregularities.
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SEBI issues show-cause notice to Brightcom Group
The SEBI order restrained Chairman Suresh Kumar Reddy, CFO Narayan Raju, and others from directorial roles. SEBI's investigation exposes fund round-tripping, forged bank statements, and unpaid shares by preferential allottees, including Shankar Sharma. The company is accused of violating company laws, siphoning off loans, and collusive practices by auditors and share transfer agents.
Earlier orders include a forensic audit and penalties for accounting fraud and insider trading. Despite revelations, some investors continued trading in this share, raising concerns about market integrity. The 73-page SEBI order reveals several financial irregularities, including:
1. Fund Round-Tripping: Brightcom engaged in round-tripping funds through various entities, facilitating the routing of funds to the promoter group. Some applicants received full refunds through layering transactions.
2. Forged Bank Statements: The company falsely claimed to have received full payment for preferential shares/warrants by providing forged and fabricated bank statements to SEBI.
3. Unpaid Shares: Preferential allottees, including Shankar Sharma, either did not pay for the shares, made partial payments, or had their money refunded.
4. Circumventing Lock-In Periods: Four LLPs categorized as promoter entities after preferential allotment allowed the group to circumvent prescribed lock-in periods for promoters.
5. Siphoning of Loans: A significant amount of money advanced as loans to subsidiaries was either siphoned off or remains unaccounted for. Some claimed advances to subsidiaries were false or overstated.
6. Violation of Companies Act: Brightcom violated Section 67 of the Companies Act, 2013, by loaning money for the purchase of shares.
7. Collusion by Auditors: Statutory auditors failed to report outright fraud, colluding in the fabrication of information and falsification of accounts. SEBI has instructed them to dissociate from the company and its subsidiaries.
8. Involvement of Share Transfer Agent: The registrar and share transfer agent of Brightcom, Aarthi Consultants Private Limited, was associated with the auditors, indicating potential conflicts of interest.
Despite these revelations and earlier orders for a forensic audit and penalties related to accounting fraud and insider trading, some investors continued to trade Brightcom's shares, raising concerns about market integrity and the quality of investors.
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