The Securities and Exchange Board of India (SEBI) has taken decisive action against four prominent online platforms for distributing bonds and debentures without proper registration. These platforms were found offering unlisted non-convertible debentures (NCDs) to the public, bypassing key regulatory norms. SEBI’s investigation uncovered practices that blurred the distinction between public and private securities, posing significant risks to investors.
Unregulated Platforms Targeted by SEBI
The platforms under scrutiny include:
- AI Growth, the owner and operator of altGraaf.
- Texterity, also a co-operator of altGraaf.
- Purple Petal Invest, the entity behind Tap Invest.
- Berkelium Technologies, which runs Stable Investments.
These platforms structured their offerings to mimic private placements but were actively selling securities to a broad investor base, circumventing compliance requirements.
The Regulatory Gap
SEBI noted that these practices undermined investor safety and regulatory oversight. By structuring public offerings as private placements, the platforms exposed retail investors to unlisted securities without adequate safeguards, violating securities laws.
The regulator has issued a cease-and-desist order, barring these platforms from offering unregistered securities to the public or facilitating their sale through their channels.
Highlighting the Financial Impact
These platforms have facilitated significant capital raising:
- altGraaf, operated by AI Growth and Texterity, reportedly helped companies raise over ₹4,400 crore through unregistered securities.
- Tap Invest, run by Purple Petal Invest, enabled fundraising of over ₹400 crore for more than 100 companies since its inception.
Details on the Platforms Involved
- Tap Invest: Founded in 2021, this platform has raised $2.3 million in funding from notable investors like QED Innovation Labs and Snow Leopard Capital. Tap Invest gained popularity by connecting investors to opportunities in unlisted securities but failed to adhere to the required regulatory framework.
- altGraaf: Known for its association with Jiraaf, a regulated fixed investment platform, altGraaf is backed by investors such as Accel and Harmony Partners. Since its inception, the platform has facilitated securities sales worth ₹4,400 crore for 75 companies.
SEBI’s Rationale for the Ban
SEBI emphasized that unregulated platforms offering unlisted NCDs pose substantial risks to investors. By bypassing regulations, these platforms operated without proper oversight, leaving investors vulnerable to default risks and other irregularities.
The regulator’s crackdown reinforces the importance of adhering to securities laws to ensure investor protection and maintain market integrity. SEBI’s investigation revealed that these platforms used aggressive marketing strategies to attract investors without clearly disclosing the risks associated with unlisted securities.
What This Means for Investors and the Industry
The rise of online platforms offering alternative investment options has created opportunities but also highlighted regulatory gaps. SEBI’s action sends a clear message to market participants that compliance with securities laws is non-negotiable.
Investor Takeaways
- Exercise Caution: Avoid investing in unregulated securities platforms.
- Check Registration Status: Ensure the platform is SEBI-registered before investing.
- Understand Risks: Unlisted securities carry higher risks due to the lack of transparency and regulatory safeguards.
SEBI’s Broader Mission
SEBI continues to tighten its grip on unauthorized financial activities to create a safe and transparent market for investors. Platforms engaging in similar practices can expect stringent regulatory actions moving forward.
This crackdown highlights the need for regulatory compliance in the rapidly evolving fintech landscape, ensuring investor interests remain safeguarded while promoting legitimate financial innovation.
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