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India’s market regulator has found a hole of more than $240 million in the accounts of Zee Entertainment Enterprises Ltd., dealing another blow to the embattled media firm less than a month after its merger with Sony Group Corp’s local unit collapsed. 

As part of its investigation into the Zee founders, the Securities and Exchange Board of India, or Sebi, found that about 20 billion rupees ($241 million) may have been diverted from the company, said people familiar with the matter who did not want to be identified as the information is not public yet. That’s roughly ten times of what was initially estimated by Sebi investigators, the people said.

The amount found missing is not final and may change after Sebi reviews the responses from the company executives, the people said. The regulator has been calling in senior officials at Zee including founders, Subhash Chandra, his son Punit Goenka and some board members to explain their stance, they added.

A Sebi representative didn’t immediately respond to an emailed request for comments. A Zee spokesperson didn’t comment on the fund diversion but said in an email Tuesday that the company “has been in the process of providing all the comments, information or explanation requested” by the markets regulator in the ongoing probe.

The reports “pertaining to accounting issues in the Company are incorrect, baseless and false,” Zee said in an exchange filing Wednesday.

Zee shares slid almost 15% in Mumbai trading, the most since Jan. 23, pushing this year’s decline to 40%. Benchmark S&P BSE Sensex closed 0.6% lower, according to data compiled by Bloomberg.

“Its becoming messy now,” said Deven Choksey, managing director of DRChoksey FinServ Pvt. “Till the time clarity emerges, investors will remain on tenterhooks.”

Sebi’s latest findings add to Goenka’s woes, as the Zee CEO tries to reassure investors after its $10 billion merger plan with Sony fell apart. The transaction, two years in the making, was terminated in January after a months-long stalemate on who’ll lead the new entity.

Read More: A Game of Bluff Scuttled Sony-Zee’s $10 Billion Media Giant Plan

Zee is re-engaging with Sony to assess if the merger can be revived but major differences persist, The Economic Times reported Tuesday, without saying where it got the information from. The Indian media firm clarified in a late-evening filing Tuesday that it is not involved in any negotiations to revive the Sony deal.

Much Wrangling

The regulatory probe into the father-and-son duo’s alleged financial improprieties has led to much wrangling between Sony and Zee since mid-2023. It made Sony wary of letting Goenka helm the merged entity while Goenka refused to give in as the CEO spot was promised to him in the 2021 merger pact. The standoff ultimately led to Sony scuttling the deal in January. 

Sebi, in an order in August, barred Zee founders — Chandra and Goenka — from holding executive or director positions in any listed firm after finding that they had “abused their position” and siphoned off funds “for their own benefit.” 

Zee appealed Sebi’s order in a higher appellate authority and got a partial reprieve in October which allowed Goenka to hold an executive position while the probe was underway.

The merger would have bolstered Sony by giving it access to Zee’s deep library of content in regional Indian languages while improving Zee’s financial health. Zee’s full-year profit plummeted by 95% in the twelve months to March 31. It reported a profit of 585.4 million rupees for the quarter ended Dec. 31 but missed analyst estimates.

--With assistance from Preeti Singh, Chiranjivi Chakraborty and Ashutosh Joshi.

(Updates with an analyst voice in the seventh paragraph.)

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