SEBI issues notice to Paytm founder over alleged misrepresentation of facts

SEBI has issued show-cause notices to Paytm founder Vijay Shekhar Sharma and other board members involved during the company's November 2021 IPO, alleging misrepresentation of facts, according to a report by Moneycontrol on Monday.

The notice reportedly addresses Sharma's non-compliance with shareholder classification norms. The issue concerns whether Sharma should have been classified as a large shareholder rather than an employee when Paytm filed its IPO papers. Sharma is listed as a public shareholder, and Paytm has no investors categorized as "large shareholders," based on exchange data.

SEBI has also questioned directors from that time for supporting Sharma's classification as a non-large shareholder. The regulator is concerned that this classification allowed Sharma to receive shares through the employee stock ownership plan (ESOP). Typically, founders with rights similar to large shareholders, or promoters, are not eligible for stock options. Sharma had reduced his stake from 14.7% to 9.1% before the IPO, which made him eligible for ESOP shares.

Paytm's shares dropped by as much as 8.9% following the report.