Scam stain on 21 IPOs
Irregularities have been found in allotment of shares by Gokaldas Exports, ILFS Investment, Jet Airways, NTPC, TCS and many others, reports KA Badarinath.
The finance ministry and the SEBI have detected irregularities in allotment of shares to retail investors in 21 IPOs in the last three years.
The scam is not just limited to Yes Bank and Infrastructure Development Finance Corporation's (IDFC) Initial Public Offers (IPOs).
Other IPOs named include those floated by Gokaldas Exports, ILFS Investment, Jet Airways, NTPC, Patni, Sasken, Suzlon Energy and Tata Consultancy Services.
The Parliamentary Standing Committee on Finance headed by Bhuvan Chandra Khanduri submitted an exhaustive report to Parliament on Tuesday highlighting the nexus between banks, depository participants (DPs), depositories like National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), as well as unscrupulous individuals that led to the allotment of shares to small investor being manipulated.
The findings of the Parliamentary Panel come soon after SEBI's recent disgorgement order slapping fines of Rs 116 crore on NSDL and CSDL, as well as six DPs like Karvy, HDFC Bank, ING Vysya and IDBI Bank.
This money would be used to compensate the small investors who were denied their fair share of stock in Yes Bank and IDFC.
Multiple demat accounts opened by unscrupulous individuals have apparently been used to get allotment of shares otherwise meant for small investors.
For retail investors, the upper slab on investment has been set at Rs 1 lakh. SEBI norms had reserved 35 per cent shares in IPOs for retail investors.
In both the Yes Bank and IDFC IPOs, individuals like Roopalben Panchal of Sugandh Estates Pvt Ltd, with the support of financiers, had got shares allotted in fictitious demat accounts with the support of forged documents, the report stated.
The Khanduri Panel report highlighted the fact that the internal auditors for Karvy, Haribhakti & Co failed to report the "multiple account opening" by its client.
One Purushottam Budhwani - an alleged key operator in the stock scam - maintained over 11,000 demat accounts to apply for shares in the retail investors' category.
Quoting the finance ministry and SEBI, the report concluded that Budhwani applied for shares in 30 IPOs during last three years.
The profits of these unscrupulous elements and their financiers has been estimated to be around Rs 72.38 crore. The Parliamentary Panel asked for a 'deeper probe into the malaise that has engulfed the stock markets'.
The value of shares cornered by the 'scamsters' has been put at Rs 134.26 crore in these two IPOs alone, the report stated. "The entire scam was meticulously pre-planned and executed," said the Khanduri report.
The committee pulled up the finance ministry for not furnishing data on IPOs beginning 1999 in which irregularities in allotment of shares to small investors was detected. "There is enough scope for further probe in the matter," Khanduri panel said.
Apart from asking SEBI to play a proactive role in preventing the recurrence of such scams, the Standing Committee has directed that it also put together standard operating procedures in three months to minimise the grey areas.
It has asked the RBI to periodically monitor the exposure of banks in the capital markets to make sure that there is no unholy nexus between banks officials and depository participants to rig the market.
The panel has directed Central Board of Direct Taxes (CBDT) to immediately ensure that all tax evaders involved in the stock scam are dealt with severely with penalties as per existing norms.