SEBI pulled up for not heeding advice on IPO scam

The Parliamentary Standing Committee on Finance has pulled up the Securities and Exchange Board of India (SEBI) for not heeding its advice on probing all initial public offers (IPOs) floated since 1999 to detect irregularities. The stock market regulator had looked into 105 public offers earlier that had hit the markets during 2003-05. In 21 such issues, SEBI had found that certain individuals and entities had manipulated the market for cornering equity shares that were meant for retail investors. The standing panel, however, had advised SEBI to investigate into all the IPOs floated since 1999 so as to unearth the exact number of scams. Initially, SEBI had detected that some multiple fictitious demat accounts had cornered shares meant for retail investors in Yes Bank’s IPO. Later, it detected similar irregularities in the public offer of IDFC. Following a probe of the IPOs floated during 2003-05, SEBI had found manipulation in 25 IPOs and took action against the depository participants and other stock market players. According to the Action Taken Report (ATR) on the panel’s recommendations tabled in Parliament on Tuesday, SEBI has pointed out that since the earliest period in which a large number of fictitious accounts were opened was 2003, it accordingly examined the IPOs during 2003-05. Moreover, SEBI was of the view that its time and resources would be better utilised in finalising follow-up actions instead of conducting probes into IPOs since 1999 as it felt that the involvement of any new entity other than those already identified would be revealed. In its ATR, the standing panel headed by BJP member Ananth Kumar noted that the market regulator should not be prejudging the issue. “Since the Income-tax Department has, in their submission to the committee, hinted at the possibility of the prevalence of similar IPO irregularities since 1999, and the Reserve Bank of India and the Central Board of Direct Taxes (CBDT) have taken action for review of IPOs since 1999, the committee desire that SEBI should also undertake the exercise in this regard,” the report said. According to the report, the RBI informed the standing panel that all banks had completed review of their IPO finance portfolio for the past three years. On January 12 this year, the apex bank asked all the banks to undertake a similar review for the earlier period starting from 1999 and send the findings and comments of their audit committees to it within two months. The panel stressed that it would like to be informed of the findings of banks and the nature of action taken for flouting the norms laid down. The CBDT has also sought information in this regard. The panel also wanted the CBDT to appraise it of the findings and the action taken thereof for violating the provision of Income-tax Act, 1961. The panel went on to add that the inordinate delay in completing the probe and giving deterrent punishment left room for suspicion regarding involvement of important officials of banks and other agencies in the IPO scam. Although nine banks are said to have already examined the criminality against officials, nothing has been mentioned in the reply about the outcome of the probe and the nature of action taken against those found guilty.