Tag Archives: bioscience

Caveat Emptor: Beware of Fraudlent GDR Issuers

If there was an Aspirational Survey conducted in India, making quick buck in share market would rank at top of the list.  Hordes of grifters, hiding behind corporate veil, take advantage of this rags-to-riches hope of uniformed investor.  People often forget a famous quote uttered decades ago by legendary Fund Manager Peter Lynch:-

 “Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business.”

Investors often fall into hideous value-traps, designed by operators in collusion management of not-so ethical companies. While the age old practice of rigging the stock price to generate interest amongst investor community remains intact, the methods are always fine-tuned to keep up with the times.

During 2007-2010 period, GDR issuances had been a favorite method of operators to drive such price rigging rackets and then dumping these penny stock to retail investors.  Investors, which are often been attracted to low multiple penny stocks, in hope of striking the next BIG thing. Such companies garner maximum attention on positive news flow like large fund raising. The rush towards such stock turns out to be near fatal when the news has a foreign angle.

Retail investors who have been tricked into putting their money in such companies have found their entire capital erode with passage of time. Actually the shares issued in foreign markets in form of GDRs are bought by operators in collusion with promoters. A GDR issues generates ample interest in the domestic market. However, these GDRs are gradually converted into shares and sold to retail investors in India.

Research desk @ Anavaran had been warning our subscribers about fraudulent GDR issuers like Avon Corp, Jupiter Biosciences for the past one year. Taking note of excessive price manipulation SEBI banned 7 such companies in September 2010.

  • Asahi Infrastructure & Projects,
  • Avon Corporation,
  • Cals Refineries..
  • CAT Technologies,
  • IKF Technologies,
  • K Sera Sera,
  • Maars Software International

In its order dated 22 September 2011, SEBI stated

“The various aspects of GDR issues, like the large size of the issue vis-à-vis existing size of the issuing company, unimpressive financials of the company, common initial investors, high proportion of cancellation of GDRs repeatedly by a set of FII/sub-accounts, sale in Indian exchanges, most of which are with a constant group of clients, and further off-loading by them, point towards an elaborate scheme to manipulate markets.”

investment fraud alert

Taking these set of characters as the benchmark, Research Desk @ Anavaran has been able to identity scores of GDR issuing companies whose stocks have been converted into common shares and sold to retail investors. Some of the noteworthy are:-

  • Beckons Industries
  • Birla Cotysn
  • Birla Shloka
  • Jupiter Biosciences
  • Southern Ispat & Energy
  • Resurgere Mines
  • Zenith Birla

Promoters of these companies have duped investors by dumping nearly worthless paper stocks at high premium to Indian retail investors. Stock prices of these company are highly manipulative in nature and hence not worthy of investment. We shall be issuing detailed analysis on each of these stocks and revealing more such stocks over the coming days. To stay updated, please subscribe to our newsletter.

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Jupiter Biosciences- A fraudecutical

Based on our analysis, we are convinced that Jupiter Biosciences has duped investors by issuing GDR and is not worth consideration as investment. Its similar to the 7 companies that were banned by SEBI in August 2011.

 

Please find below some jottings on our company that strengthens our case:

  • The company’s profit fell drastically in 1Q 11 and 2Q 11.
  • Promoters hold less than 5% in the company creating ample scope for fraud.
  • The company had issued GDR @ Rs90 last year which were converted into shares and subsequently sold to retail investors at less than issue price.
  • We remain convinced that the company had not received cash from the GDR issue. Most likely the promoters in collusion with operator had rigged share price before GDR issue. These GDRs were eventually converted into shares and then sold to public making a clean gain of over Rs150Cr.
  • Its company secretary resigned in June 2011 giving further boost to the fraud theory.
  • The only positive company had was its long track record of paying dividends, but even that was reduced this year.

Thus we foresee fraud in GDR issue in the the company and doesn’t consider fit for investment purpose.  There might be operator driven spurts in the stock but we don’t have prowess to predict such short term movements.