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SEBI forms Corporation Finance Investigation Department (CFID) to check Promoter Frauds

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SEBI forms new department to check promoter fraudsMarket watchdog Securities and Exchange Board of India (SEBI) has set up a specialised department Corporation Finance Investigation Department (CFID) to tackle initial public offering (IPO) proceed fraud, diversion of funds, bank loans and resources by company promoters.

  • This decision has been taken after the finance ministry had asked SEBI to act on promoters diverting investor funds for personal gains in November 2020 as there are a number of cases on these matters against Cox and Kings, DHFL (Dewan Housing Finance Corporation) and Vijay Mallya.
  • The new department will be headed by one of SEBI’s executive director. Nagendraa Parakh, who is currently heading Market Intermediaries Regulation and Supervision Department (MIRSD) is named for the same. It will also have information technology (IT) solutions experts.

Key watches under CFID:

  • Raising of Rs 25,000 crore in 2020 through large IPOs.
  • Raising of Rs 160 crore so far in 2020 by small and medium enterprises (SMEs).
  • A projection of 30 IPOs worth Rs 30,000 in primary market during 2021.
  • SEBI was asked by 80 companies for issues including SMEs

Functions of CFID:

It will handle siphoning or misappropriation of funds; Material mis-statement in financial statements; Probing of complex transactions involving resources of the listed entity undertaken for the ultimate benefit of promoter/promoter group; Investigate fraudulent related party transactions wherein financial and governance issues are inter-linked; Cases where a forensic audit has been initiated by lenders, management other regulators; and look into allegations made against auditors.

Additional Info:

–Vijay Mallya is accused of fraud and money laundering worth thousands of crore.

–As per Enforcement Directorate (ED), DHFL promoters had diverted more than Rs 12,000 crore.

–More than Rs 7,000 crore have been laundered by Cox and Kings promoters.

–It should be noted that as per the requirement SEBI brought in relevant clauses and changes to the (Issue of Capital and Disclosure Requirements) (Third Amendment) Regulations, 2020.

What is an initial public offering (IPO)?

It is the first sale of shares of a private corporation to the public in a new stock issuance. It allows a company to raise capital from public investors. It can also be used for debt repayment, acquisitions, and a host of other uses.

Recent Related News:

i.On November 25, 2020, the Securities and Exchange Board of India (SEBI) launched Securities Market Trainers (SMARTs) program, as a part of World Investor Week (WIW) 2020 being celebrated by SEBI in India from Nov 23, 2020 to Nov 29, 2020.

ii.On November 5, 2020, SEBI issued a circular on “Enhancement of overseas investment limits for mutual funds” under which the foreign investment limit per mutual fund (MF) house has been doubled to $600 million, from the existing $300 million, within the overall industry limit of US $ 7 billion.

About Securities and Exchange Board of India (SEBI):

Establishment– April 12, 1992
Chairman– Ajay Tyagi
Headquarters– Mumbai, Maharashtra