SEBI finds fraud in the cloud

**Akshara** (0:04)
In today's episode, we'll break down one interesting story in depth, followed by a shorter story. First, we'll talk about SEBI finding fraud in the cloud, and then we'll talk about an unseen fallout of insurance commission caps. Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara. Today is Thursday, 27th August. Coming to the first story. Every industrial revolution, from the first car to the first robot, may be different in product characteristics, but has some uncanny similarities. When a new technology shows commercial potential, entrepreneurs rush in and fuel tons of money in the hope that, one day, they'll reap outsized returns. But this creates a frenzy where too much money ends up chasing far fewer returns.
Eventually, this bubble bursts and causes a recession. But with the right policies, such a recession gives way to a golden age of productivity. Now, in the chaos of a bubble, which is fueled by easily accessible capital, there will almost certainly be bad actors. They may rely on the shine of this new technology to manipulate markets without actually advancing it, and they may even resort to blatant fraud. So in the age of a massive data center build out, we are already seeing signs of this in India. In 2022-23, a company called Veranium Cloud, led by promoter Harsh Vadhan Sabale, raised money from the public markets, and it made many promises on the back of data centers and cloud services. But on Monday, SEBI published a 155-page final order, which found nothing but smoke and mirrors instead, and accused it of outright fraud. So the story starts from Veranium's listing. In its prospectus, Veranium said to investors that it would use the proceeds of its Rs. 40 crore IPO in three things. First, it would build three edge data centers, which are small data center units that are meant to serve only the devices close to it. Second, Veranium would set up three digital learning centers. And third, it would run a BPO operation out of these locations. Between listing and the interim order, in May 2024, Veranium made 25 corporate announcements. And here are some of the big ones. So Veranium was meant to inaugurate an edge data center in Goa, and it announced a partnership with Secure Credentials for BPO operations. It also launched a cloud-based medical wearable device. It disclosed plans to acquire a cable company for rupees 2683 crore to be paid wholly in cash. And it told the stock exchanges it was setting up a data center in Malta, and separately that it was planning to list a subsidiary on the NASDAQ. None of these announcements materialized. But yet, SEBI found that 11 of the 25 announcements moved the stock price upward, including two that triggered upper circuits. So how do we know what was real and what was up in the clouds? In January 2025, SEBI and NSC conducted site visits at every location Veranium claimed to operate from, and it found many damning facts. To start with, at the given Goa address, there was no edge data center building, which Veranium told investors it had commissioned in December 2022
Instead, a Veranium admin office was found, whose staff had no idea of any edge data center plans. The lease for the premises was dated April 2023, four months after the supposed commissioning. And then there was the electricity bill.
Even the most unknowing person is aware that data centers are among the most power-hungry facilities in existence. But a single monthly billing cycle towards the end of 2023 showed just six units consumed. That's what a light bulb uses in a few days. And that's weird for a data center that's been in commission for a whole year.
What's more, in the immediate next month, the electricity bill jumped to a whopping 2,450 units. Possibly, someone had switched things when the law's long hand reached them. At another location in Savantwadi, Veranium had publicly announced it employed over 125 young people in its BPO. But SEBI only found eight people who said that they were only involved in documentation work. They were doing very little of what a BPO does. Now, the vendor who was meant to build all of this was Avans Technologies, which is also a publicly listed company. But somehow, it had zero fixed assets on its balance sheet. Avans later confirmed to SEBI that it didn't execute any work because Verenium chose to handle the projects directly. The quotation Verenium obtained from Avans for the IPO prospectus exceeded Avans' own annual revenue. Now, if the operations were fiction, the financial statements were a masterpiece of the firm. Over FY23 and the first half of FY24, SEBI found that most of Verenium's reported sales and purchases were fictitious. And the centerpiece was Amtel Phone, an entity Verenium claimed to sell services to. Over two years, Verenium booked Rs. 594 crore in sales to Amtel Phone. And a public domain search yielded only basic information about the company. Neither Verenium nor its suppliers could varnish any invoices or contracts in support of the transactions. So when SEBI examined Verenium's tally ledger, the entries for Amtel Phone were monthly lump sums recorded at the end of each month, but without corresponding bank receipts. Instead, Verenium's journal entries offset Amtel Phone's receivables against payables to Amazon Web Services. Now Verenium claimed to have purchased rupees 444 crore in cloud services from AWS. But when SEBI asked, AWS sent back invoices that merely amounted to rupees 20,000 to rupees 23,000. Now Verenium's books also contained a single journal entry of rupees 107 crore worth of sales to a US-based clothing company called Courage Clothing.