JM Financial is forbidden by Sebi from handling bond offerings

MUMBAI: Due to irregularities at its NBFC subsidiary, JM Financial Products, markets regulator Sebi on Thursday prohibited JM Financial from accepting any new mandate to serve as a lead manager for the public issuance of debt instruments. However, according to a Sebi ruling, JM Financial may carry on managing the problems that it has committed to completing for the next sixty days.

Sebu
In its ruling on Thursday, Sebi said that normal inspections into a few recent public offerings of non-convertible debentures revealed that JM Financial Products, one of the lead managers in one of the offers, offered investors guaranteed returns.

According to the ruling, JM Financial is prohibited from operating since such assurances are against Sebi regulations. JM Financial informed the bourses of Sebi’s directive late in the evening, pledging to “fully cooperate with Sebi in this investigation.”.
The banking regulator, RBI, had only two days earlier prohibited JM Financial Products from providing loans against shares, including funding initial public offerings (IPOs), after seeing many procedural violations by the company. This was when the Sebi ruling against J.M. Financial was made. JM Financial quickly refuted claims that its lending division had broken any regulations after the release of the RBI decision.
Within the following six months, Sebi plans to conclude its investigation into this problem. The ruling from Thursday is ex parte, which is a unilateral decree made without considering JM Financial’s perspective. As a result, Sebi has given the business 21 days to provide Sebi with an explanation of their position.
Sebi reports that during one of the October 2023 open public offers, “it was observed that JM Financial Products (JMFPL) acted as counterparty to the trades of individual investors and had also provided the funds deployed by these investors for subscribing to the issue.” JMFPL then sold a significant amount of the securities it had bought from these individuals to corporate buyers that same day, offloading them at a loss.”
The Sebi inquiry further showed that these investors applied for NCDs via JM Financial Services, a stock broker and additional group company of JM Finance, for the public offering.
The regulator looked into the investors who had taken out loans from the NBFC after it was discovered via inquiries that “JMFPL had provided a ‘exit’ to all the applicants who had availed funding from it.” Sebi discovered ten cases in which investors received loans totaling Rs 98 lakh apiece despite declaring annual incomes below Rs 5 lakh. Sebi also discovered that loans totaling Rs 9.8 lakh were granted to 47 more investors who reported annual incomes below Rs 5 lakh.
According to Sebi, there were several additional inconsistencies in the debt offers that JM Financial had handled, including in the loan application procedure, margining system, and application forms.