The Securities and Exchange Board of India has unearthed another multiple demat account scam of a much larger proportion than the one in the YES Bank IPO allotment.
This time, it involves the IPO of the Infrastructure Development Finance Company. In a blatant abuse of the IPO allotment process, fictitious applications cornered 8.29 per cent of the retail shares allotted in the IDFC public issue, Sebi said on Thursday.
Sebi Chairman M Damodaran said investigations were on and the capital market watchdog was determined to clean up the system.
This might be the beginning of a series of investigations as the Sebi order states that Purshottam Budhwani, one of the beneficiaries of the benami demat accounts in the IDFC public issue, adopted a similar modus operandi with respect to various other IPOs during 2005, including Suzlon Energy, SPL Industries, Shoppers Stop, Provogue India, Nectar Lifesciences, IL&FS Investsmart, Gokuldas Exports, Gateway Distriparks. Sebi will probe the role of all other players across various IPOs.
In its interim order, Sebi said it would immediately conduct an inspection of Karvy, the registrar to the IDFC issue and also a depository. The inspection is meant to ascertain the reasons for the systemic failure and also to determine the qualification of Karvy as 'a fit and proper person'.
The role of three merchant bankers -- Kotak Mahindra Capital Company, DSP Merrill Lynch Ltd and SBI Capital Markets -- has also come under the Sebi scanner.
Hemandra Kothari, chairman of DSP Merrill Lynch, said, "I do not think there are problems at our end since we have well-established 'know your customer' procedures in place."
Others could not be reached for comments. IDFC's Corporate Planning head Bimal Giri said, "We are actually unpleasantly surprised to the extent that these irregularities are beyond the company's control."
Sebi has named Roopalben Panchal, Sugandh, Purshottam Budhwani and Manojdev Seksaria as the beneficiaries of the dematerialised accounts scandal using accounts with branches of Bharat Overseas Bank, HDFC Bank, Indian Overseas Bank, ING Vysya Bank and Vijaya Bank.
Sebi has referred these banks to the Reserve Bank of India for probing their role in opening of accounts of benami entities (with the same address) in total disregard of the 'know your customer' norms as well as funding their IPO applications.
The modus operandi was the same as in the case of the Yes Bank IPO. The allotments made in the IPOs to various applicants were transferred in off-market deals to these beneficiaries just ahead of listing of shares and the involved parties had made huge profits by selling the shares immediately on listing.
Sebi said the facts cast grave doubts on the genuineness of thousands of IPO applicants who have apparently furnished the address of Roopalben Panchal or Sugandh or Purshottam Budhwani as their address.
The findings of the investigation have supported the initial findings of Sebi that Karvy-DP has 'actively colluded with the above entities in opening multiple/benami bank accounts and dematerialised accounts in the names of fictitious persons'.
The stock exchanges have been asked to examine the role and involvement of brokers/sub-brokers by way of participation in IPOs either directly or indirectly and their dealings in the shares subsequent to listing.
Sebi said both National Securities Depository Ltd and Central Depository Services Ltd should assume greater responsibility in the interest of the investors and integrity of the market.
It has directed Karvy-DP and Pratik-DP to complete the process of verifying the identity and address of dematerialised accountholders and to close or freeze the dematerialised accounts by January 31.
It has also directed these two entities against opening new dematerialised accounts till the submission of the report and issuance of no-objection by Sebi for accepting fresh business as a DP.
Roopalben Nareshbhai Panchal, Sugandh Estates & Investments, Purshottam Ghanshyam Budhwani, Manojdev Seksaria have been barred from dealing in securities market, directly or indirectly, till further directions.
Thirty-five other entities have also been barred from buying and selling of shares of IDFC.
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