Sebi has prohibited Varanium Cloud, its promoter and managing director Harshwardhan Hanmant Sabale from the securities market till further orders for mis-utilising the IPO proceeds and manipulating the company's financial statements by recording fictitious sales and purchases.

Also, the regulator restrained Sabale from acting as a director or key managerial personnel of any listed company, any Sebi-registered intermediary or any company which intends to raise money from the public, until further orders.

In its interim order passed on Friday, Sebi said, "The genesis of the prima facie violations observed in the matter has its roots in the SME IPO of Varanium, which continued through the bonus issue and stock split followed by the rights issue.

"It has prima facie emerged that the money raised through the IPO and subsequent rights issue was not used for the intended purpose mentioned in the offer documents. Instead, the promoter shifted part of IPO funds to an entity, BM Traders, and the end use of such funds is not known.

In addition, Sabale spunned an intricate web of dubious transactions and tried to paint a picture that did not represent the fundamentals of the company.

Further, Sebi noted that the company made public announcements meant to give an impression to the investors that Varanium was a top-notch IT service provider that was entering greenfield areas.

In its effort to present such a picture, Varanium and its promoter entered into transactions that appeared only on paper and nothing was happening on ground as claimed by the company.

In the entire sequence of events and the narrative built by the promoter (Sabale) through public announcements, a positive sentiment was created which induced a large number of retail investors into purchasing the stock.

This presented an opportunity to the promoter entities to exit the company and reduce their stake significantly at the cost of gullible investors. The gains made by Sabale clearly showed the intent and purpose behind such public announcements.

"Retail investors need to exercise certain level of due diligence while investing in SME companies and not be swayed by seemingly attractive returns that may quickly come their way," Sebi's whole time member Ashwani Bhatia said in the order.

By indulging in these activities, Sebi found Varanium and Harshawardhan Hanmant Sabale, has violated the provisions of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP).

The order came after certain complaints have raised concerns regarding financial statements published and corporate announcements made by Varanium Cloud Ltd, a NSE's SME platform, Emerge listed company.

Thereafter, the regulator examined the matter for the violations of Sebi rules. The examination covered by Sebi for the period from September 2022 to March 2024.

In September 2022, Varanium raised funds of Rs 40.39 crore through an initial public offering (IPO) from public investors.

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