Fraud, Forgery And Other Suspicious Transactions Involving 8K Miles
It’s been a downhill ride for shares of technology company 8K Miles Software Services Ltd. The cloud services provider has lost 90 percent of its value since hitting an all-time high of Rs 1,029.95 apiece on Nov. 29, 2017.
The slide was accelerated by a string of suspicious developments including, most recently, an allegation by its Promoter and Chief Executive Officer Suresh Venkatachari that two brokerages fraudulently sold a large chunk of company shares owned by him.
Before that an auditor of a private company owned by RS Ramani – Promoter and Chief Financial Officer of 8K Miles Software Services, alleged forgery and resigned. 8K Miles Promoter Venkatachari was once co-owner of that company and also served as director on its board at the time of the forgery allegations.
And then there’s the issue of suspicious related-party transactions and continuous sale of shares by Ramani, who resigned last month. The company continues to list him as CFO on its website.
In an interview with BloombergQuint, Venkatachari answered questions regarding the many suspicious transactions involving his public and private companies.
The most important questions and answers to them are summarised here:
Delay In Disclosing Allegedly Fraudulent Sale Of Shares
On Oct. 12, 8K Miles Software Services informed stock exchanges that 25.7 lakh shares owned by Venkatachari were wrongfully transferred by brokerages Quantum Global Securities Ltd. and Kumar Share Brokers Ltd. via off-market transactions. The sale was done without Venkatachari’s consent and knowledge, according to the company statement, and legal action has now been initiated against the brokers.
The shares sold amounted to an 8.42 percent stake in the company—no meagre chunk. The alleged fraudulent sale occurred in July, but at the time neither the company nor the promoter made any disclosure to exchanges regarding the incident or the subsequent reduction in his stake.
Venkatachari filed a police complaint on Sept. 17 and yet no public disclosure was made of the alleged theft or change in promoter shareholding. The first mention of any such change was on Oct. 8 when the promoter notified exchanges that he had pledged additional shares with IFCI Ltd. and Indian Bank Ltd. It’s in that disclosure that Venkatachari revealed his shareholding had fallen from 55.80 percent to 47.38 percent. Notice of the alleged fraud was given four days later.
Why did the promoter and the company drag their feet in making this information public?
Venkatachari told BloombergQuint that his shares were transferred using forged signatures and that he didn’t notice any decline in shareholding because the sale notifications went to an email address he didn’t use. It was only after he and the company were able to gather information regarding the drop in shareholding did they inform the stock exchange, he said.
I had kept the shares in the DP account of the brokers and not signed any authority form for such transfers. The confirmations of these transactions were coming to a different email address when I was staying in the U.S. This email was registered in the brokerage forms. I found that the shares were transferred out of my account in July. We reached out to the broker to return shares and they were unable to do it. We have gathered all facts and submitted data to SEBI and the police.Suresh Venkatachari, Promoter and CEO, 8K Miles Software Services
Soon after the interview with Venkatachari, one of the brokers accused of selling the shares fraudulently spoke to BloombergQuint. Bhavesh Singh, promoter and managing director of Quantum Global, said they were “false allegations”.
“We are in the process of taking legal action against him. Venkatachari and Ramani were aware of everything and all was done with his consent,” Singh told BloombergQuint in a phone conversation.
He is trying to hide behind this issue to save himself from his past issues. We were technically and legally right in transferring his shares. Whatever the broker did was within his right and legal framework. It was a trigger of margin call.Bhavesh Singh, Promoter and MD, Quantum Global
Auditor Accuses 8K Miles Promoter Of Forgery
8K Miles Media Pvt. Ltd. is a private company which at one time was owned equally by Venkatachari and Ramani. They both served as directors on its board.
On Apr. 30 this year, GHG Associates resigned as the auditor for 8K Miles Media Pvt. Ltd. citing fraudulent use of the audit firm’s letterhead, seal and its partner’s signature to transfer Rs 46 crore a U.S-based subsidiary 8K Miles Media Holdings Inc. The auditor claimed the forgery took place in nine overseas direct investment certificates between Jun. 21, 2017 and Mar. 28, 2018.
During that period, Venkatachari and Ramani were both directors and shareholders of 8K Miles Media Pvt. Ltd. Venkatachari owned 50 percent of the company’s shares till Jul. 17, 2017, after which his stake declined to 0.18 percent. That’s because Ramani infused capital through a fresh issue, increasing his holding to 83.06 percent.
The auditor’s resignation letter was filed with the Registrar of Companies in April 2018 but was made public on social media on Sept 24. BloombergQuint has reviewed a copy.
A day later, Venkatachari resigned as director of 8K Miles Media. And while Ramani stayed on as director of the private company, on Sept. 28 he resigned as CFO of the listed 8K Miles Software Services.
But forgery is no mild accusation against persons who are also promoters and directors of a public-listed company.
In his response, Venkatachari made three points. That the funds were transferred to a 100 percent subsidiary of 8K Miles Media. That his shareholding in 8K Miles Media was now only 0.18 percent. And that Ramani was investigating the allegation of fraud by the audit firm.
Venkatachari didn’t explain why no disclosure of these allegations was made earlier in the May to September period, considering his status as a key managerial personnel of a listed company. He claimed he resigned as a director of the private firm on Sept. 25, 2018, a day after the story broke, because he thought that would bring investor confidence back.
Venkatachari told BloombergQuint Ramani expressed his desire to step down as the chief financial officer of the listed firm to give him the necessary time to clear “all the baseless and unsubstantiated allegations against 8K Miles Media Pvt. Ltd.”
Ramani’s Share Sales
Over the past year and more, Ramani has sold a substantial portion of his shareholding in the listed 8K Miles Software. His holding is now down to 4.75 lakh shares, falling from 7.07 percent at the end of March 2017 to 1.56 percent at the end of June 2018, according to exchange filings.
Curiously, in the past year he also gave the listed company an unsecured loan of Rs 37.5 crore.
Venkatachari said that Ramani was keen to exit the software business and hence was selling shares. As for the loan, “Ramani gave a loan for one of the acquisitions, and our intention is to repay the loan to him,” he explained.
The FY17-18 annual report of the listed 8K Miles Software Services shows that loans and advances worth Rs 105.9 core were given to 8K Miles Media Group Inc, a privately owned U.S. company in which Venkatachari holds the majority stake.
As of March 2018, 8K Miles Media Group owed the Indian listed entity Rs 58 crore in principal and Rs 7 crore of interest. In the previous financial year, it repaid Rs 48 crore but no interest, according to information in the annual report of the listed 8K Miles Software Services.
Venkatachari indicated that loans extended by the listed company were to grow business in the U.S. He didn’t clarify why a listed company gave loans not to a subsidiary but to a promoter entity.
He, however, said all outstanding loans would be repaid by the end of December 2018.
Interestingly, while 8K Miles Media Group Inc. is distinct from 8K Miles Media Holdings (to which funds were transferred from 8K Miles Media Pvt. Ltd. on the basis of allegedly forged auditor signatures), the two promoter companies share the same registered address.