SEBI fines Brightcom Group ₹34 crore for financial misrepresentation

India’s market regulator, the Securities and Exchange Board of India (Sebi), has imposed fines totalling ₹34 crore on Brightcom Group Ltd (BGL), its promoters, and other individuals for misrepresenting the company’s financial statements.

Brightcom, which claims to provide global digital marketing services to advertisers and agencies, was found to have engaged in accounting irregularities that significantly distorted its financial position, according to Sebi.

The regulator levied a penalty of ₹15 crore each on Brightcom’s promoters, M Suresh Kumar Reddy and Vijay Kancharla. Additionally, both individuals have been barred from participating in the securities market for five years. They are also prohibited from holding directorial or key managerial positions in any listed company or Sebi-registered firm during this period.

Further penalties include ₹2 crore on Y Srinivasa Rao and ₹1 crore each on BGL and Yerradoddi Ramesh Reddy. Both Ramesh Reddy and Srinivasa Rao have been banned from the securities market for one year and are restricted from holding executive positions in listed companies for the same duration.

Sebi’s investigation revealed that BGL failed to comply with accounting standards, leading to significant misrepresentation of its financial reports between the financial years 2014-15 and 2019-20. The company delayed recognising major asset impairments and artificially inflated its profits by ₹1,280.06 crore in FY19 and FY20.

The regulator has now directed Brightcom to publish the standalone financial statements of all its subsidiaries from 2014-15 to 2021-22 on its website within 15 days, in line with disclosure norms.

Sebi found that the accused individuals, who held executive positions and were members of the company’s audit committee at various times, played an active role in approving the misleading financial statements.

One of the key concerns was that these violations enabled Brightcom’s promoters to gradually reduce their shareholding from 40.45% in March 2014 to just 3.51% in June 2022. Sebi believes this was part of a fraudulent scheme to manipulate financial disclosures, allowing promoters to profit by selling shares at inflated prices.

The case came to light following multiple investor complaints between October 2020 and March 2021. In April 2023, Sebi issued an interim order against Brightcom, its promoters, and directors, citing financial misstatements and accounting irregularities. The final order now confirms these violations and the resulting penalties.

Sebi concluded that BGL and its promoters engaged in fraudulent practices, violating the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations, and took action accordingly.