A charge sheet has been filed in a Mumbai court against 22 accused in the multimillion rupees primary market scam which was reported by the Securities and Exchange Board of India (Sebi) in February 2006, the Central Bureau of Investigation (CBI) said on Tuesday.
"The charge sheet in the initial public offer (IPO) scam, which involved using thousands of benami demat accounts to corner shares allotted in the retail segment, was filed in a Mumbai court on Saturday," the CBI said in a press statement.
The CBI had registered two criminal cases after the Sebi filed a complaint regarding the scam at the Mumbai branch of the Bank Securities and Fraud Cell (BS&FC) in February 2006.
The scam came to light in 2005 when Yes Bank launched its IPO. Rupal Panchal of Ahmedabad had allegedly opened several fake demat accounts and raised funds on the shares allotted to her through Bharat Overseas Bank branches.
The Sebi started a broad investigation into IPO allotments after it detected irregularities in the applications to Yes Bank's IPO and several IPOs during 2003-05 were subsequently found to be manipulated in a similar manner.
According to the CBI charge sheet, thousands of applications in the name of fictitious people were submitted to corner shares in the retail individual investors (RII) category.
Anticipating profits after stock market listing of the shares, the investors were trying to increase their chances of receiving allotments - made by a draw of lots - by sending in a large number of applications albeit in fictitious names.
For this purpose, bank and demat accounts were also opened with forged documents and photographs were downloaded from websites like Shaadi.com and pasted on application forms under different names with a common postal address.
"The depository participants took no tangible steps to weed out and reject these fictitious applications. Instead, they connived with middlemen to provide funds," the CBI said.
In many cases, the bidding was done without subscription money. The registrar to the given issue raised no objections in accepting the share application forms which were not accompanied by local cheques or demand drafts for the subscription money, a mandatory requirement," the statement added.
The CBI said that though such applications were ineligible, shares were allotted to these fictitious applicants. "Since the persons did not exist, they could obviously not take physical possession of the shares.
"Delivery instructions slips (DIS) were, therefore, also forged to show transfer of the shares to the demat accounts of the middlemen, in collusion with some depository participants."
This was facilitated as the same market intermediary performed multiple functions of depository participant, syndicate members, financiers, registrar to the issue and broker.
"Officials of Bharat Overseas Bank and Indian Overseas Bank, who had deliberately flouted the mandatory norms to open thousands of fictitious bank accounts and also sanction loans to such fictitious applicants, were also named in the charge sheet," it added.