The Telegraph
Since 1st March, 1999
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Sebi shock for IPO scamsters

Mumbai, April 27: The so-called toothless tiger roared tonight ' baring its fangs and digging its claws deep into the perpetrators of the scam surrounding the initial public offerings (IPOs) of several companies that erupted last October.

The Securities and Exchange Board of India (Sebi) today barred 24 key operators, including IndiaBulls Securities, from operating in the stock market due to their “abusive practices” with respect to initial public offerings of several companies.

Roopalben Panchal ' the low-profile housewife from Ahmedabad who has been touted as the unlikely mastermind of the scam that was perpetrated by opening millions of fictitious demat accounts ' has been barred from participating in the stock markets.

After trawling through 105 IPOs from 2003 to 2005, the capital market watchdog unearthed a minefield of irregularities that prompted it to clamp down hard on market operators, their key financiers, banks who had opened demat accounts in the names of benami persons and entities, and depository participants.

In its 252-page interim order issued tonight, Sebi also directed 85 financiers, including Karvy Stockbroking and Anagram Securities, “not to buy, sell or deal in securities market, including in IPOs, directly or indirectly, till further directions.”

The report sent a frisson through the stock markets and several pundits expected the bourses to flounder when they open for trading tomorrow.

Said Arun Kejriwal, director, KRIS, “The market will tank tomorrow but I do not see more than a 300-point drop.”

Kejriwal’s views are supported by another analyst in a foreign brokerage who says a knee-jerk reaction may see at least 200 points being wiped off the sensex tomorrow.

The regulator appears to have slammed the Karvy group hardest because several entities within the group were involved in the IPO manipulations. The regulator directed Karvy Stockbroking, Karvy Computershare Pvt Ltd, Karvy Investor Services and Karvy Consultants “not to undertake fresh business as a registrar to issue and share transfer agent excepting those businesses already contracted as on date”.

This statement is significant and all investors in the blockbuster Reliance Petroleum issue that closed on April 20 will heave a huge sigh of relief. Karvy Computershare is the share registrar to the RPL issue, which is due to list any time in the first week of May.

HDFC Bank, IDBI Bank, Central Bank, ING Vysya Bank, IL&FS and Motilal Oswal have been asked by the market regulator not to open fresh demat accounts.

Sebi also asked depository participants like Karvy and Pratik DP to stop accounts till further notice.

Sebi said 58,938 depository participant (DP) accounts had been used to corner retail portion of IPOs.

Commercial banks were stunned by the ferocity of Sebi’s order. Most of the banks named in the order refrained from making any comment and said a formal communication would be issued only tomorrow. “We are only studying the order. We will issue a formal reaction tomorrow,” said a spokesperson from Centurion Bank of Punjab.

The focus will now shift to the Reserve Bank of India (RBI) with speculations gaining momentum on what action it might take. A spokesperson from RBI said the apex bank may issue a statement tomorrow.

Gagan Banga, executive director of Indiabulls, said, “Our role as alleged in the Sebi order is limited to the fact that Indiabulls demat account has received 13,939 shares of TCS from 559 accounts. We have received these shares in our client margin account. Sebi has assumed that these clients have given these shares to Indiabulls because they were used by Indiabulls for cornering TCS IPO shares. The order is factually incorrect. It would have been better if Sebi would have at least asked us as to why we received shares from 559 accounts. If we are a retail broker, then we receive shares from clients as margin. Under the Sebi laws, we cannot trade for clients without receiving a margin from them.”

Both Indiabulls and Anagram Securities said they would contest the Sebi order.

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