Just now read the SEBI order against an SME company: Varanium Cloud Ltd and its promoter:

Harshawardhan Sabale.
The Order is a thrilling read into the tactics used by promoters in siphoning money from companies
and a classic example of the pumping and dumping of stocks by the promoter.
Total gain made by the promoter in this case: more than ₹160 cr.
Let us see some of the key learnings from the case.
1. It all started when all of a sudden, in Dec. 2023, the stake of the promoter in the company
declined to 36% from 63% in Sept 2023. Investors asked questions from the company. It did
not give any satisfactory reply. Then, someone filed a complaint to NSE and then SEBI got
involved in the case and NSE started an investigation.
2. The company had raised ₹40 cr in IPO only a year back, in Sept 2022 stating that it will use
this money to create data centers. However, when NSE team visited its data centers, then
there were no data centers at those sites. (Both Goa and Sawantwadi)
3. This was the situation when the company had said that its data centres had already started
operations in Dec. 2022.
4. Similarly, it claimed that its Edmission Centre (Distance Learning education centre) in
Sawantwadi is operational since Feb. 2019. However, when the NSE team went to the site,
then it realized that there was no distance learning centre at the location.
5. So, what did it do with the IPO money that it had raised to create data centres? It transferred
most of it (about ₹24 cr, 60% out of IPO proceeds of about ₹40 cr) to an entity: BM Traders
6. BM Traders is apparently involved in the wholesale business of fruits and vegetables! And to
top it all, BM Traders does not have any employees!! and its business address was a
residential address with no business activity.
7. Other than syphoning off IPO money via BM Traders, SEBI found that the company
manipulated its financial statements to show a picture of humungous sales growth to pump up
its sales price. The company showed huge amount of sales to a company "Amtelfone
Incorporated": Rs.326.22 Cr (83.91% of total sales) in FY23 and Rs.268.10 Cr (71.44% of
total sales) in first-half of FY24. NSE could not find any worthwhile information about
Amtelfone's business except that its registered address was the same, which was shared by
numerous other companies in Panama Papers leaks.
8. The company told SEBI that it received hundreds of crores of rupees from Amtelfone from its
sales. However, SEBI found out that the bank account of the company did not have any such
entry/inflow of money from Amtelfone. Effectively, these sales were fictitious.
9. ther than fictitious sales, the company showed false expenses to show that it is running a
genuine business. For example, to show that it is running a technology/data centre business, it
showed hundreds of crores of rupees of expenses to Amazon Web Services India (AWS):
Rs.201.85 Cr (77.79% of total expenses) in FY23 and Rs.243.53 Cr (100%) in First Half of
FY24. However, SEBI could not find any payments to AWS in company's accounts. It all
seemed fictitious expense created to mislead investors.
10. In order to show a great business performance to investors, the company created a US
subsidiary: Varanium Cloud INC in Nov. 2023 and within 2 months of creation, it showed
sales of ₹392 cr from this US subsidiary.
11. However, upon enquiry, SEBI found out that the US subsidiary did not have any employee
(Zero) and the company did not provide any details about this company to SEBI despite
multiple reminders. It indicated that the sales shown in US subsidiary were also fictitious.
12. It seemed that syphoning off most of the IPO money (₹40 cr) was not sufficient, in January
2023, the company planned to raise ₹1,250 cr more from investors. This time the purpose was
shown to acquire a company named Fastway Transmission Pvt. Ltd. Luckily, investors were
 saved this time because the bubble burst before the company could get approval of NSE for
raising this money. It turned out that the owner of the target company, Fastway had
absconded and was running away from police, which had launched a manhunt to arrest him.
13. However, the promoter found other ways to take out money at the cost of retail investors.
After pumping the stock price of Varanium higher by creating a story of high growth, the
promoter sold his 27% stake in the company and made gains of about ₹140 cr. (pump and
dump) Apparently, he could not sell his remaining stake because it was under lock-in after
IPO.
14. Now, SEBI has ordered the company and its promoter Harshawardhan Sabale to stay away
from equity markets. However, the case study of Varanium Cloud Ltd acts as a glaring
example about how much important it is to do proper analysis before investing in stocks. It is
essential that investors do a proper management analysis before buying any stocks. This is
because, the promoter is the single biggest factor that will make or break your investment in
stocks. The promoter is the doorkeeper between fruits of the business and the retail investors.
15.