Mumbai, Dec. 29: A committee appointed by the Securities and Exchange Board of India (Sebi) today suggested a way to compensate millions of retail investors who were robbed of the opportunity to secure share allotments in 21 companies as a consequence of the infamous IPO scam between 2003 and 2005.
Unscrupulous financiers perpetrated the scam by cornering shares that were meant for retail investors through an army of bogus investors and benami demat accounts.
The 21 IPOs include those floated by Tata Consultancy Services, Jet Airways, Suzlon Energy, NTPC, Yes Bank, Patni Computers, Gokaldas Exports and TV Today. The companies were unwitting victims of the IPO scam and do not face any charges.
The Justice D.P. Wadhwa committee estimated the unjust enrichment of these scamsters at Rs 95.69 crore.
It suggested that the money could be clawed out of the frozen demat accounts of these financiers that hold Rs 147.85 crore. The CBI had also frozen their bank accounts that have another Rs 1.2 crore.
This is the first time that an attempt is being made to compensate hapless investors by disengorging the unjust profits of market manipulators.
However, the committee admitted that there were certain limitations in the process that needed to be adopted to determine the number of genuine investors who had suffered and how to make the reparations. It did, however, suggest a spillover method to compensate the deprived investors.
The committee said it may not be possible to get the requisite number of shares from the market. At the same time, available funds may not be sufficient to purchase the requisite number of shares at the current market price and give to the deprived investors.
Therefore, it suggested that reallocation be quantified in monetary terms. The entitlement of each deprived applicant would be initially computed based upon shares but subsequently converted into monetary terms.
To determine the sum of money considered for reallocation, the committee recommended the difference between the closing price of the shares on the first day of listing and IPO issue price.
It suggested that the deprived applicants needed to be split into three groups: applicants who were not allotted any shares, those who were partly successful under the firm allotment category, and finally those who were partly successful under the drawal of lots category.
It observed that since allottees of these IPOs had seen value of their investments rise due to strong markets, it was the unsuccessful allottees who were impacted the most as their application money was refunded to them.
The committee therefore felt that the totally unsuccessful applicant had a first call on the reallocation, but only up to a point — up to the minimum number of shares allotted per applicant — after which partly successful investors in the firm category and thereafter partly successful applicants in drawal of lots category may also be considered for reallocation, it noted.
It termed this as the spillover method of compensation.
An analyst with a domestic brokerage who did not wish to be identified said the move to compensate retail investors was commendable but it might be difficult to complete the process because of legal hurdles.