An SME busted for fund misuse puts 20 more IPOs managed by the same lead manager under scanner

Capital markets regulator Sebi has widened its investigation into the misuse of IPO funds in the SME segment, following its action against Synoptics Technologies and its lead manager First Overseas Capital (FOCL). In its order, the regulator has barred Synoptics Tech and its promoters from the securities market for siphoning off IPO funds.

In the same order, Sebi mentioned that it will review 20 other SME IPOs managed by FOCL, checking for similar irregularities.

Sebi’s investigation into Synoptics revealed that funds raised through the IPO were not used for the stated business purposes. Instead, the money was diverted through multiple accounts to entities with no clear business activities.

The lead manager, FOCL, was found responsible for failing to ensure that the funds were properly used, raising questions about its role in the process.

The regulator’s move to expand the probe to 20 other IPOs where FOCL acted as lead manager suggests larger governance issues plaguing the SME segment.

Sebi is now examining whether a similar pattern of fund diversion, inflated expenses, or questionable end-use of IPO proceeds was repeated across these listings.

SME IPO market has seen a wave of crackdown from the regulators as the promise of high returns and rapid listing gains has often attracted strong retail participation. One of the key changes in the recent past was the introduction of a profitability requirement, where SMEs must have a minimum operating profit of Rs 1 crore in at least two of the last three financial years to qualify for an IPO.

This move is aimed at ensuring that only companies with a proven track record of profitability can access public funds.

To curb excessive selling pressure from promoters, Sebi also capped the Offer for Sale (OFS) component in SME IPOs at 20% of the total issue size. Additionally, selling shareholders are restricted from offloading more than 50% of their holdings during the IPO.

As Sebi continues its investigation into the 20 FOCL-managed IPOs, the outcome could further shape the regulatory landscape for SME public issues in India.

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