Sebi issues confirmatory order, bans JM Financial from managing debt public issues till March 2025

Markets regulator Sebi has issued a confirmatory order restraining JM Financial Ltd from acting as a lead manager for public issues of debt securities until March 31, 2025, in a case of alleged irregularities in a public issue of non-convertible debentures (NCDs).

The regulator, in a confirmatory order, clarified that the restriction only applies to public issues of debt securities and does not affect JM Financial Ltd's (JMFL) other activities, including equity issues.

Reacting to the development, JM Financial, in a filing to the stock exchanges, said that the order is in line with the voluntary undertaking of the company.

"The order, in line with the voluntary undertaking of the company, has directed the company to not take any new mandate as lead manager in the public issue of debt securities up to March 31, 2025, or such further date as may be specified by Sebi," JM Financial said.

The confirmatory order followed an interim direction issued by Sebi in March, whereby it barred JMFL from taking new mandates as a lead manager for public issues of debt securities.

Sebi, prima facie, found that JMFL, as a lead manager, had allegedly irregular practices involving retail investors and associated companies within the JM Group.

It further stated that JM Group entities appeared to incentivise investors to apply for securities in issues managed by JMFL.

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The regulator noted that significant NCD allocations were made to retail investors who sold these securities on the listing day. The primary buyer was JM Financial Products Limited (JMFPL), a JM Group NBFC. JMFPL then sold these securities at a loss.

Further, many retail investor applications were funded by JMFPL through JM Financial Services Ltd, with JMFPL holding power of attorney over these accounts.

Following Sebi's interim order, JMFL requested the regulator not to confirm the restrictions and offered voluntary undertakings instead. JMFL, in hearings on April 24 and June 18, 2024, reiterated these voluntary undertakings but did not argue the merits of the case.

As a part of voluntary undertakings, JM Financial stated that it will not take any new mandates as a lead manager for public issues of debt securities until March 31, 2025, or a later date specified by Sebi.

JMFL's board voluntarily decided to stop IPO financing completely and improve its systems and processes to prevent any wrongdoing, ensure staff training, conduct workshops on regulatory requirements, and submit a compliance certificate by December 31, 2024.

Given the same, Sebi said there is a need to continue the directions issued through the interim order, which is also part of the voluntary undertaking submitted by JM Financial, till the completion of the investigation into the matter.

"JM Financial shall not act as a lead manager in any public issue of debt securities till March 31, 2025, or such other date as may be specified by Sebi vide by an order," it added.