How SEBI’s Forensic Audits Are Unmasking Capital Market Frauds? Tuhin Kanta Pandey Explains

SEBI Chairman Tuhin Kanta Pandey on Friday cautioned about rising instances of financial fraud in India’s capital markets. He said these frauds ranged from simple diversion of shareholder funds to complex transactions designed to bypass regulatory safeguards.

Speaking at the Future Proof Forensics 2025 event in Mumbai, he highlighted how SEBI has used forensic audits to uncover several such cases. "We must safeguard market integrity, the foundation that fuels investor participation and sustains capital formation," Pandey said.

Fraudulent Practices Uncovered by SEBI

Pandey explained that SEBI investigations have revealed cases where listed companies transferred their assets to subsidiaries. He said loans taken by such subsidiaries against these assets were then used to repay outstanding loans of promoter-linked entities.

In another case, a company inflated its financial statements by entering into circular transactions with multiple lending entities. The promoters later siphoned off shareholder funds through related-party transactions disguised as purchases or sales involving their own companies.

He further said SEBI found instances where proceeds from preferential allotments were misused. Instead of resulting in cash flow to the company, these funds were routed back to the original allottees through complex, multi-layered transactions.

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He added that forged bank statements were submitted to SEBI to show false receipts of funds, and the statutory auditor failed to report the structured circulation of funds.

Impact and Regulatory Action

Pandey warned about misleading disclosures made just before the expiry of the lock-in period on shares issued through preferential allotments. He said such false statements allowed preferential allottees to exit at a profit, often at the cost of retail investors.

"These are egregious cases. I'm not saying this is a generalised phenomenon. I'm just giving you certain examples of egregious cases which have been detected," Pandey clarified.

He stressed that the impact of such financial frauds on the securities market is severe and that SEBI is relying on forensic audits to identify and act against such wrongdoing. Pandey reaffirmed the regulator’s commitment to protecting market integrity and investor trust.