SEBI Cracks Down on LS Industries Over Suspicious Stock Surge and FEMA Violation Concerns

In a dramatic turn of events, the Securities and Exchange Board of India (SEBI) has imposed a ban on LS Industries and several related entities following an investigation into suspicious stock price movements and a potential violation of the Foreign Exchange Management Act (FEMA). The probe revealed an extraordinary case where shares purchased for just $1 skyrocketed to a valuation of ₹2,752 crore and even touched ₹22,700 crore at its peak, despite the company reporting negligible revenues and even zero revenue in two quarters of FY25.

SEBI Flags "Absurdities and Anomalies" in LS Industries Stock Movement

In an interim order issued on February 11, SEBI Whole-Time Member (WTM) Ashwani Bhatia termed the situation a clear case of "absurdities and anomalies", warranting urgent regulatory intervention to prevent a potential pump-and-dump scheme.

The investigation uncovered that LS Industries, incorporated in 1993, displayed highly unusual stock price fluctuations, which did not correspond with any substantial corporate developments. The stock, which traded at ₹22.50 post-suspension in July 2024, soared by 1,089% to ₹267.50 by September 2024. It then saw a steep fall of 84.15% to ₹42.39 by November before rebounding 223% to ₹136.87 by December.

This erratic movement, combined with abysmal financials, led SEBI to conclude that something was seriously amiss. The situation came to light after an article titled "Mystery of A Zero Revenue Company With Rs. 5500 Crore Market Valuation" was published by NDTV Profit on February 3, 2025.

Unusual Share Transfer Raises FEMA Violation Suspicions

A key finding in SEBI's investigation was the bizarre transfer of LS Industries' shares by its former director, Suet Meng Chay, to Dubai-based investor Jahangir Panikkaveettil Perumbarambathu (JPP). The transfer, valued at ₹10.28 crore, was executed for just one dollar. Subsequently, these shares surged to astronomical values, allowing JPP to make unlawful gains of ₹1.14 crore, which SEBI has now impounded.

This transaction raised red flags about a potential FEMA violation, as SEBI feared that the rapid escalation in stock value could be a way to move money out of India through stock sales. To prevent this, SEBI has not only banned LS Industries, JPP, and four other connected entities from the market but is also investigating whether illicit funds were funneled abroad.

Facebook Connections and a Web of Related Parties

Another alarming aspect of the case was the network of individuals connected to LS Industries. SEBI discovered that JPP had direct ties to LS Industries’ promoters through social media. A Facebook link traced JPP to Ashish Garg, whose relatives are key figures in Profound Finance Pvt. Ltd., the entity that owns LS Industries.

Additionally, SEBI found that relatives of individuals linked to Robochef, a company that LS Industries planned to acquire, had used the acquisition announcement as an opportunity to dump shares and make windfall profits. This pattern of trading raised further concerns of market manipulation.

Investor Caution and SEBI’s Warning

WTM Ashwani Bhatia issued a stern warning to investors, cautioning against blindly chasing stocks with no fundamentals. In his statement, he compared such speculative investing to “children following the proverbial Pied Piper of Hamelin.”

"Markets can be generous at times but cannot be so generous to give outlandish gains. Investors must not allow the lure of easy profits to get the better of them," Bhatia stated.

Conclusion

SEBI’s action against LS Industries is a significant step toward preventing market manipulation and protecting retail investors. With concerns of a pump-and-dump scheme, possible FEMA violations, and a complex web of interrelated parties, the regulator has acted swiftly to ban key entities, impound illegal gains, and investigate potential foreign fund diversions. As the case unfolds, SEBI has reinforced its commitment to enhancing transparency and accountability in the Indian stock markets, urging investors to conduct thorough due diligence before investing in seemingly lucrative but fundamentally weak companies.