Brightcom CMD Suresh Reddy, CFO Narayana Raju resign amid SEBI crackdown

Brightcom Group, in an exchange filing on Sunday, announced the resignations of its Chairman and Managing Director (CMD) Suresh Reddy and Chief Financial Officer (CFO) Narayana Raju, amid a crackdown by market regulator Securities and Exchange Board of India (SEBI). The company’s board in a meeting lasting nearly 2 hours, considered and approved the decisions.

The resignations come after SEBI barred Reddy and Raju from occupying board positions after its investigations found several instances of irregularities regarding accounting as well as mis-statements in the company’s financials.

Additionally, the Enforcement Directorate had carried our searches at multiple locations in Hyderabad connected with the company. The residences of Reddy, Raju, office and residence of company’s auditor P Murali Mohana Rao were searched by the ED under provisions of the Foreign Exchange Management Act (FEMA), it said.

The board moreover, in its leadership transition process, proposed a transition leadership team to oversee the process of transition. The board is also seeking a new CEO and CFO to ensure smooth continuation of essential operations.

Brightcom’s staff was also intimated about the leadership changes. “Transparent and clear communication will be maintained throughout this transition period to ensure minimal disruption to daily operations,” it said. The investors, stakeholders as well as the public would also be informed about the departure of the CMD/CEO and CFO in accordance with SEBI’s order, it said. “The communication will be truthful, professional, and consistent with the company's values,” Brightcom said in the filing.

Brightcom’s board also acknowledged the need for regulatory compliance and assured that necessary steps will be taken to engage with relevant regulatory bodies and ensure compliance during the transition period.

“The Board is committed to managing this leadership transition in a responsible and strategic manner, prioritizing effective communication, regulatory compliance, financial stability, and the well-being of the company's employees and stakeholders,” it said.

According to the ED, Brightcom, in violation of FEMA provisions, financed the preferential issues by round=tripping funds through subsidiaries and conduit entities and falsely claimed to have received full payment for the preferential shares by providing ‘forged and fabricated statements’ to SEBI. Moreover, over Rs 300 crore advanced as loans to subsidiaries were partly siphoned off or remain unaccounted.

“The statutory auditors, M/s P Murali & Co. and M/s PCN & Associates (related entity of P Murali & Co.), apart from failing to report outright fraud, colluded with the management/promoters of the company,” it said.

The ED recovered and seized unaccounted cash of Rs 3.30 crore and gold jewellery and bullion worth Rs 9.30 crore from the residence of auditor P Murali Mohana Rao.

Also read: Brightcom's troubles mount as ED conducts searches at 5 offices, residences of top officials