SEBI Bans Pacheli Industrial And Six Entities Over Suspicious Stock Surge, Citing 'Pump-And-Dump' Activity

The Securities and Exchange Board of India on Thursday banned Pacheli Industrial Finance Ltd. and six other entities from the securities till further orders for violations, including suspicious trades during a price rise period.

The markets regulator said that it acted on the case while the stock was still in the "pump" phase of the pump-and-dump transactions—an operation where manipulators artificially inflate a stock's price through misleading promotions before selling off their shares, causing the price to crash and leaving other investors with losses.

The interim action has come up before the damage could reach the investors, according to a person familiar with the matter.

SEBI, in its interim order on Thursday, said that between Dec. 2, 2024, and Jan. 16, 2025, the share price of the company rose nearly five times from Rs 21 to Rs 78. The Pacheli Industrial Finance stock was hitting a 5% upper circuit since Dec. 9, and within eight months, the company's market cap increased from Rs 40 crore to Rs 4,000 crore on Thursday.

This is a rare case where the market regulator did not start its investigation based on an outsider's tip but on its own internal alert system. As per the order, this was primarily because the share price movement of Pacheli Industrial Finance did not appear consistent with the reported financials.

SEBI checked the company's financials on Screener.in and found that it reported negligible revenue in the last three financial years. It also noted that the company initially took a loan of Rs 1,000 crore but did not disclose how the funds would be used. The regulator said in its order that the loans were likely taken from connected entities.

Post this, the loans were converted into shares.

SEBI also checked the company's financial statements and found that the loan was round-tripped, with funds circulated back and forth. The company issued shares but did not receive any money for them.

Finally, as a result, six select entities, which are also a party in the order, ended up owning 99.28% of the shares. This meant preferential allotment of 51.51 crore equity shares to six non-promoter entities at Rs. 16.50 per share. 

This preferential allotment was worth Rs. 850 crore.

Out of the entire amount, Abhijit Trading Co. Ltd., Hibiscus Holdings Pvt. Ltd., Avail Financial Services Ltd., and Edoptica Retail India Ltd. advanced Rs. 150 crore into the company, while Sulphur Securities Pvt. Ltd. and Calyx Securities Pvt. Ltd. infused Rs. 125 crore. 

SEBI has granted all the accused entities 21 days to file their replies or objections to the order and indicate whether they seek a personal hearing. This is SEBI's interim order, which serves as a temporary measure until the full investigation is completed. The regulator reserves the right to take further action after the investigation.