Economic Times reported, The Enforcement Directorate (ED) has intensified its crackdown on market abuse, launching a wider investigation into more than 50 individuals and companies suspected of using penny stocks to launder money. The agency has issued multiple summonses under the Prevention of Money Laundering Act (PMLA), seeking detailed financial disclosures and information on links with little-known firms whose shares are believed to have been artificially inflated.
This fresh round of scrutiny follows a recent search operation on a technology company, during which investigators uncovered a network allegedly involved in coordinated price manipulation and the conversion of unaccounted cash into tax-paid income through long-term capital gains.
Notices Issued Under PMLA
Over the past two weeks, the ED has sent notices to several market participants, each identifying a specific penny stock suspected of being rigged. Those summoned must provide records of all dealings with the named company, including financial transactions, shareholdings and the nature of their association.
The notices have been issued under Section 50(2) of the PMLA, which empowers the Directorate to call individuals to provide evidence or submit documents during an ongoing investigation.
Concerns Over Rising Litigation
Tax and legal experts warn that the ED’s probe could trigger a new wave of litigation for many retail and high-net-worth individuals who are already contesting tax demands related to penny stock trades.
Some argue that taxpayers face the risk of repeated penalties for the same transactions.
Industry voices say the government may eventually need to clarify whether cases where tax has already been assessed and penalties paid should fall outside the ambit of PMLA action to prevent duplication of punitive measures.
How PMLA Comes Into Play
PMLA provisions are applicable when stock manipulation is linked to a predicate offence, such as violations of securities regulations established by SEBI. If investigators establish that gains from the transactions qualify as “proceeds of crime,” the ED is authorised to deepen its probe and can freeze or attach assets, including bank accounts and immovable properties.
With the latest action, the agency appears to be signalling a stricter stance on the misuse of micro-cap stocks—an area historically prone to pump-and-dump schemes and tax evasion practices.
