IPO scamsters’ profits may be given to retail investors

The Securities and Exchange Board of India’s Justice Wadhwa committee has recommended a three-step process to distribute amongst genuine retail applicants the profits made by scamsters in the initial public offerings since 2005. Scamsters had cornered shares meant for retail investors in 21 IPOs by operating multiple demat accounts (afferent accounts). They fraudulently made gains by selling the IPO shares after listing on the exchanges. The committee has observed that the total unjust gains works out to about Rs 95.690000000 across the 21 IPOs (including Yes Bank,Jet Airways (India) Limited TV Today Network Limited Tata Consultancy Services Limited and IDFC IPOs) under consideration. The committee also observed that the quantum of unjust gains based on allotment to afferent accounts is approximately Rs 95.690000000,of which Rs 91.420000000 were identified as belonging to shares that were transferred to key operators. The committee observed that the value of the holdings in the frozen demat accounts in both NSDL and CDSL of the key operators and financiers as on October 31,2007,works out to about Rs147.850000000. The balance in the bank accounts of financiers frozen by CBI is Rs 1.20000000. The total amount outstanding in these demat and bank accounts is Rs 149.060000000. Sebi had investigated certain irregularities in initial public offerings (IPO) from the year 2005 and constituted a committee under the chairmanship of former Supreme Court judge Justice D P Wadhwa and four other members (representing investor associations,registrars to the issues,merchant bankers and Sebi) to recommend the procedure of identification of persons who might have been deprived on account of such IPO irregularities and the manner in which reallocation of shares to such persons should take place. Sebi had initiated proceedings against certain key operators and financiers involved in the IPO irregularities to penalise them and disgorge the ill-gotten gains these key operators had made. Sebi has been successful in disgorging a part of the gains that such entities have made.