‘Many Gensols still hiding in the cupboard’: Vijay Kedia shares 10 red flags that scream before a scam

Gensol Engineering fraud: The misappropriation of funds and corporate governance lapses by the promoters of Gensol Engineering – Anmol Singh Jaggi and Puneet Singh Jaggi – have brought to light the risks of investing in small-cap and micro-cap stocks. Ace investor Vijay Kedia believes that Gensol is not the sole company that is riddled with such issues, and there are many more hiding in the cupboard. While Kedia refrained from taking any names, he hoped that by the time other scams come out it's not too late.

“There are many 'Gensol' still hiding in the cupboard—waiting to tumble out with time. Let’s hope it’s not too late by then,” said Vijay Kedia in a post on the social media platform X on Wednesday evening.

Kedia did not just warn investors of being cautious about more such frauds coming to light, but also shared a guide with investors to spot these companies before getting their hands burned.

10 red flags to spot corporate scams

Sharing a guide with stock market investors, Vijay Kedia highlighted 10 red flags that can act as a scam alert. He advised investors to be wary of companies that:

1. Talk big and overpromise
2. Maintain constant media presence — through news coverage, hyperactive social media posts, and endless interviews
3. Magnify even the smallest developments
4. Raise funds frequently without clarity on deployment
5. Diversify into unrelated businesses just to ride trending narratives
6. Overuse flashy buzzwords to sound innovative without real substance (e.g., “AI-powered,” “next-gen,” “disruptive” etc )
7. Flaunt lavish promoter lifestyles that don’t match company performance
8. Have high levels of promoter pledging
9. Face frequent exits of key personnel (CFOs, auditors, CXOs)
10. Engage in excessive related-party transactions

What are Gensol Engineering promoters accused of?

Gensol Engineering made headlines after CARE and ICRA downgraded its credit rating to 'D', amid allegations of falsified documents submitted to show timely debt servicing.

The latest Sebi order that came out on Tuesday evening, April 16, has barred the promoters from the securities market amid accusations of siphoning off the company's funds for personal use, forgery and misleading disclosures.

Sebi, in its order, said that prima facie findings indicate misutilisation and diversion of company funds in a fraudulent manner by Gensol Engineering’s promoters. Additionally, the company attempted to mislead Sebi, credit rating agencies (CRAs), lenders, and investors by submitting forged conduct letters, it said.

Sebi order details that the funds borrowed for investment purposes were routed off to acquire an apartment in ‘The Camellias,’ DLF, purchase of expensive golf set, travel and other purposes.

“What has been witnessed in the present matter is a complete breakdown of internal controls and corporate governance norms in Gensol, a listed company. The promoters were running a listed public company as if it were a proprietary firm,” the Sebi order read.

The market regulator also put Gensol Engineering's 1:10 stock split on hold to protect the interests of retail investors.

In a fresh blow, Gensol Engineering's independent director Arun Menon tendered his resignation, citing high debt concerns as the reason.

“There was growing concern on the leveraging of GEL's balance sheet to fund the capex of other businesses, and the sustainability of servicing such high debt costs by GEL,” said Menon.

He added that he had expressed his desire to resign last year but was told to hold on till the IPO of Matrix is successfully concluded.

“My present employment, where our parent is a PE firm, also restricts me from taking up an ID role in companies. Keeping in view the aforesaid reasons, I would like to tender my resignation from my role as Independent Director in GEL with immediate effect,” Menon said.

Why are Gensol shares falling?

Gensol Engineering share price has been in a free fall since late February, losing over 80% of its value since then. Today, April 17, was the second straight session when the stock was locked in the 5% lower circuit following the Sebi order. However, the small-cap stock is down for the seventh consecutive day.

Gensol Engineering has erased over ₹3,800 crore of investor wealth since June 2024, when it was trading at its all-time high level of ₹1,125.75.

“With the company now barred from fresh capital, its stock faces permanent de-rating. Markets have a long memory when it comes to governance failures - this stain will linger long after the headlines fade, crushing both valuation and investor confidence,” said Tarun Singh Founder & MD, Highbrow Securities.

Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.