The capital markets regulator has identified three parameters for taking action against such companies and the trading would be suspended in the shares of those entities that satisfies more than one of the criteria.

"These parameters include these companies being non- existent on their mentioned address, misuse of preferential allotment and weak fundamentals not supporting price rise," a senior official said.

In its probe into various such cases, SEBI found huge share price rally in shares of the companies that existed only on paper and did not even exist on the addresses mentioned in their regulatory filings, while preferential allotment has emerged as a major route for laundering of illicit funds.
     
The modus operandi typically involves stock market dealings aimed at evading capital gains tax and showing the source of income as legitimate from stock markets.
     
SEBI found a typical pattern in trading of shares of these companies. First, the shares would be allotted on preferential basis to certain connected entities, price would be pushed higher without any fundamental move, followed by an exit being given to these investors and the shares would be sold back to the company or related entities raking in huge profits.
     
Such huge profits were made in stocks where fundamentals or financials of the companies did not justify the price. A large number of small NBFCs and brokers are already under SEBI's scanner for having facilitated illicit transactions worth thousands of crores of rupees over the past 2-3 years, sources said.

It has emerged during investigations by SEBI and stock exchanges that such illicit activities tend to accelerate during last few months of a fiscal and quantum of such transactions has grown manifold in the last few years.

Besides, a number of such entities, which includes both individuals and corporate brokerage firms, have been found to be repeat offenders for various offences in the securities market and many of them create new shell companies to hide their past precedents.
    
Those under the scanner also include some listed firms and their promoters, who regularly offer their services for channelising black money and for evading taxes through use of stock exchange platforms.

While it may be difficult to quantify the entire value of black money laundered through stock markets, as also the total tax amounts evaded through this platform, sources said that the total figure may easily run into several thousands of crores of rupees given the spread of such illicit activities.

In just two cases, where SEBI last week passed interim orders, total illicit gains estimated worth Rs 500 crore have come to the fore in case of a select few entities.

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