When the Securities Exchange Board of India (Sebi) started scanning an entire spectrum of IPOs launched over 2003, 2004 and 2005, it ended digging up more dirt and probably prevented a larger conspiracy to hijack the market.

IPO Scam Trend

What was the IPO scam that tormented the indian market?

It involved manipulation of the primary market—read initial public offers (IPOs)—by financiers and market players by using fictitious or benaami demat accounts.
While investigating the Yes Bank scam, Sebi found that certain entities had illegally obtained IPO shares reserved for retail applicants through thousands of benaami demat accounts.

They then transferred the shares to financiers, who sold on the first day of listing, making windfall gains from the price difference between the IPO price and the listing price.

What triggered the SEBI probe?

On October 10 last year, an Income Tax raid on businessman Purushottam Budhwani accidentally found he was controlling over 5,000 demat accounts. Sebi finds this suspicious.
On December 15, Sebi declared results of its probe, how a few people cornered a large chunk of YES Bank IPO shares.
On January 11 this year, Sebi discovered huge rigging in the IDFC IPO.

Roopalben Panchal was found to be controlling nearly 15,000 demat accounts. It was found that once they obtained these shares, the fictitious investors transferred them to financiers. The financiers then sold these shares on the first day of listing, reaping huge profits between the IPO price and the listing price. The Sebi report covered 105 IPOs from 2003-2005.
The Sebi probe covered several IPOs dating back to 2005, 2004 and 2003 to detect misuse. These included the offerings of Jet Airways, Sasken Communications, Suzlon Energy, Punj Lloyds, JP Hydro Power, NTPC, PVR Cinema, Shringar Cinema and others. A lot more dubious accounts across several IPOs are expected to tumble out in the next few days.

It also detected similar irregularities in the IDFC IPO, in which over 8 per cent of the allotment in the retail segment was cornered by fictitious applicants through multiple demat accounts.

How big is the scam?

Apart from the YES Bank fraud, Sebi reportedly has definite data about two IPOs where retail allotments were rigged, but market observers believe the scam is far bigger. The Yes Bank and IDFC cases are only a tip of an iceberg, say analysts.

The Sebi probe has identified more operators and some market intermediaries involved in the misuse of the initial allotment process in public offerings dating back to ’04-05.The Income-Tax Department in Ahmadabad has found that two major accused, Panchal and Sugandh Investments, have together made Rs 60.62 crore in 18 months.

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