ED files first case in money laundering via fake long term capital gains

Enforcement Directorate The Enforcement Directorate (ED) has registered its first case of money laundering through fake long term capital gains, against a group of investors on a complaint by the Securities and Exchange Board of India. These investors are alleged to have laundered Rs 400000000 by claiming them as profits from their investments in shares of Radford Global. The investors—Pinky Agarwal, Pratik Agarwal beneficiary trust, Praveen Kumar Agarwal HUF and Praveen Kumar Agarwal—were already charged by SEBI for having manipulated the stock price of Radford Global, in which they got shares on a preferential basis. On January 4, the ED registered an Enforcement Case Information Report (ECIR) against these investors on the basis of a criminal complaint filed by SEBI, a person privy to the information told Moneycontrol. The ED has registered case under section 3 of the Prevention of Money Laundering Act (PMLA) 2002. Till long term capital gains tax on equity investments was reintroduced in the Budget of 2018, many wealthy investors were laundering their undisclosed money, or evading taxes through the long term capital gains route. Section 3 of PMLA says that “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering.” In December 2014, SEBI had barred 108 entities from accessing the securities for allegedly rigging the stock price of Radford Global. The names included the promoters of bankrupt firms Alok Industries and Bhushan Steel. In its subsequent order a year later, SEBI has lifted the restrictions on the promoters of Alok Industries and Bhushan Steel citing lack of evidence against them. In February 2012, Radford Global had allotted 9100000 equity shares of Rs 10 each at a premium of Rs 5 on preferential basis to 48 entities aggregating to Rs 13.650000000. These shares had a lock-in period of one year. Between February 2012 and January 2013, the stock price rose from around Rs 3 to Rs 241. The SEBI order noted that the company’s fundamentals did not support such a steep appreciation in the stock price. In January 2013, the company announced a split in face value of the stock from Rs 10 to Rs 2. After the stock-split, the stock price rose from Rs 49 (adjusted for the stock-split) to Rs 86 by July 2013. It then started to slide and crashed to Rs 4.89 by March 2014. “Radford announced a stock-split to make a passage for preferential allottees to exit on expiry of the lock-in since the stock split would reduce the per share price and increase liquidity,” the SEBI order of December 2014 noted. It further said “After the expiry of lock-in, it was noted that after the stock split, the preferential allottees sold the shares to entities connected/related, directly or indirectly, to Radford Group/Suspected Entities, thereby raking in huge profits.”