The Telegraph
Since 1st March, 1999
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Scam-jolted stocks settle

Mumbai, April 28: Stocks tumbled and the sensitive index plunged almost 500 points at the start of trading today in reaction to the market regulator’s trading ban on 24 operators last night.

Recovery was as spectacular as the sensex, the market barometer, recouped all losses to end the day with even some gain.

The bounce-back followed clarifications by the Securities and Exchange Board of India (Sebi) that the dirty double dozen can continue to trade on behalf of their clients.

It also suspended the ban on one of them, Indiabulls Securities, but not on Karvy Stockbroking, another large player.

Late on Thursday, Sebi had announced a ban on trading by the 24 after a preliminary investigation into cornering of shares of companies that had come out with maiden flotations over the past three years.

The regulator stayed the ban on Indiabulls after its chairman Sameer Gehlaut and executive director Gagan Banga met Sebi officials to explain their side of the story and why they had been wrongly implicated in the case.

After plunging to the day's low of 11344.61, the 30-share sensex staged a sharp recovery as foreign institutional investors continued to pour in money, enthused by the stream of end-of-the-year corporate results.

The index leapt to the day’s high of 11877.32 before ending at 11851.93, a net gain of 16.91 points.

But if Sebi appeared to soften its stand, the finance ministry signalled that it was in favour of meting out harsh punishment to the perpetrators of the scam. Officials said they would step in only if Sebi and the Reserve Bank failed to prosecute the people behind the share fraud.

Finance ministry officials said the income-tax department had been ordered to follow the paper trail and unearth the trove of black money that had been used to corner shares allotted by new issuers through fictitious accounts.

The investigation wing of the income-tax department in Ahmedabad has unearthed a major part of the scam. It had conducted searches and sent summons to 32 people, including key scamsters like Roopalben Panchal and Sugandh Estate.

Now the other income-tax collectorates will join the paper chase. “We feel this will lead us to other IT offences which may not be related to the stock market. We have to understand how the spare cash which was pumped into the market through bogus individual accounts was generated,” officials said.

Finance ministry officials said they were coordinating efforts with Sebi, revenue intelligence, banks and income-tax officials.

In Mumbai, banking industry sources said the RBI would carry out its own investigations to determine whether any more irregularities were committed by banks. Sebi had ordered four banks yesterday ' HDFC Bank, Centurion Bank of Punjab, IDBI Bank and ING Vysya Bank ' not to open new dematerialised accounts (which investors use to buy and sell shares in paperless trading) till further orders.

Ten other banks are under the scanner because investigations revealed that these banks had more than 500 demat holders who shared a common address.

These include ICICI Bank, Standard Chartered Bank, UTI Bank, Kotak Mahindra Bank, IndusInd Bank, Citibank, BNP Paribas, Uco Bank and Kalupur Commercial Cooperative Bank.

Banking sources said banks could face monetary penalties if they are found to have failed to verify the antecedents of the account holders.

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