Role of Depository Participants > Suzlon Energy IPO: Rs 1,496.

34 cr (September 23-29, 2005) Key operators used 21,692 fictitious accounts to corner 3,23,023 shares which is equal to 3.74 per cent of the total number of shares allotted to retail individual investors. > Jet Airways IPO: Rs 1899.3 crore (Feb 18-24, 2005) Key operators used 1,186 fake accounts for cornering 20,901 shares which is equal to 0.52 per cent of the total number of shares allotted to retail investors. > National Thermal Power Corporation IPO Rs 5,368.14 crore (Oct 7-14, 2004). 12,853 afferent accounts were used for cornering 27,50,730 shares representing 1.3 per cent of the total number of shares allotted to retail investors. > Tata Consultancy Services IPO: Rs 4,713.47 crore 14,619 benami accounts were used to corner 2,61,294 shares representing 2.09 per cent of the total shares allotted to retail individual investors.
This is the largest penalty imposed by SEBI ever - 116 crores in total. NSDL, CDSL and 8 other DPs have been find 115.81 crores in total for their involvement in the IPO scam. In a disgorgement order, SEBI full -time member G Anantharaman held NSDL and CDSL liable for repayment of additional gains made during the IPOs. NSDL ow ned by NSE and government-owned financial institutions has to pay Rs 45 crores. CDSL owner by BSE and other financial institutions has to pay 12.89 crores. Karvy Stock Broking has been asked to pay Rs 51.50 crore. Besides, depository participants Karvy Stock Broking Ltd, HDFC Bank Ltd, Khandwala Integrated Financial Services Pvt Ltd, IDBI Bank Ltd, Jhaveri Securities Pvt Ltd, ING Vysya Bank Ltd, Pravin Ratilal Share & Stock Broking Ltd and Pratik Stock Vision Pvt Ltd were also asked to pay up. The time limit set for these payments is six months. The order however allows the entities to seek contribution from any party other than the intermediaries involved in the scam. The order states All parties are at liberty to seek contribution or indemnity from any party that they believe is liable to a greater extent than quantified here, as also from individuals and companies which were involved in the IPO cornering or fraud but are not named, not being intermediaries under section 12 of the SEBI Act 1992. It is not known how the named entities would recover the alleged gains from the persons who opened benami demat accounts for IPO applications. SEBI arrived at the amount to be disgorged by multiplying the shares obtained in the wrongful allotment with the difference between the listing price and the issue price. This was done in each of the 21 cases where unfair allotment was found. Disgorgement refers to repayment of funds that were received through illegal or unethical business transactions. The money may go into the Investor Protection Fund or may be used to compensate investors. The order is an extension of SEBI's April 27 interim ruling that banned 12 DPs from opening fresh demat accounts for a specified period.Earlier this year, SEBI found that 24 key operators had cornered large portions of the retail segment of 21 IPOs between 2003 and 2005 by using benami or fictitious accounts. The operators and their financiers are alleged to have used 58,938 such accounts. After the IPO allotment, these fictitious allottees transferred shares to their principals,

who in turn transferred the shares to the financiers who had originally made the funds available for executing the plan. The financiers sold most of these shares on the first day of listing, making huge prof its. Investigations are expected to go on in the case, which pertains to certain individuals opening multiple demat accounts to corner retail portion of public offers through off market transactions.These transactions were carried out between the date of allotment of shares and listing. SEBI had looked into 105 IPOs during 2003 -05, beginning with Maruti and other major IPOs like TCS, NTPC, Jet Airways, Yes Bank and IDFC. Protests are expected against this order. A DP stated that they at best be fined for being negligent in not following the due process of verification in opening multiple accounts. Since they have not profited by selling the allotted IPO shares, they are not liable for disgorgement. Sebi in its latest order has also failed to prove that the 10 players had actually profited directly from the IPO scam. For example, NSDL is only a repository of shares for investors and does not trade in shares. It, therefore, could not have profited in anyway in the IPO scam. Says a lawyer defending a DP: "Sebi has failed to nail the actual culprits. This order is just to show itself in good light."

A central Bureau of Investigation (CBI) team today raided 27 places of officials and investors involved in the initial public offering (IPO) scam in Mumbai, Delhi, Ahmedabad and Hyderabad, including the houses of prime accused Roopalben Panchal. The CBI also raided the premises of Karvy Consultancy at Abhijeet and Kamdhenu Building in the Ahmedabad city and carried out searches at Bharat Overseas Bank. The CBI team has seized a number of incriminating documents from the places of alleged kingpins of the scam Roopalben Panchal, Dipak Panchal and Dhiren Vora, among others. Confirming that the raids and searches are being carried out in Ahmedabad, Rahul Sharma, head of Gujarat state, CBI, said, Teams of Economic Offences Wing of CBI raided various places in Ahmedabad today. However, he declined to give information saying the searches were carried out by Delhi and Mumbai CBI teams. The searches were carried out following a case registered by the Banking Securities & Fraud Cell (BS&FC) of the CBI in the wake of complaint filed by the Securities and Exchange Board of India (Sebi). Examination of papers is being conducted at 15 places in Ahmedabad, CBI sources said. As per the CBI initial investigations, it is estimated that certain individuals and entities, conniving with certain bank officials, made an illegal profit of around Rs 32 crore after cornering large number of shares meant for retail investors in the IPOs of Yes Bank Ltd (YBL) and Infrastructure Development Finance Company Ltd (IDFC). There were two main intermediaries who carried out the fraud (Panchal and another group of individuals as Directors of Sugandh Estates & Investment Pvt Ltd), says CBI. Both opened fictitious bank and demat accounts, mainly in Bharat Overseas Bank, Ahmedabad, Worli and Goregaon branch in Mumbai, and Ahmedabads Vijaya Bank. CBI says it has evidence that one financer has given almost Rs 30 crore to Panchal for investing in IPOs while another financer invested Rs 21 crore in these IPOs.

Two cases were registered against Panchal, her brother-in-law Deepak Panchal, Directors of Sugandh Estates and Investments and some officials of Bharat Overseas Bank and Vijaya Bank. The searches have also yielded about Rs one crore in cash and substantial investment by these investors in other assets, CBI says. The CBI investigation was on to examine whether there was a systemic failure on part of the lead managers. The agency alleged that Karvy-DP, which was the lead manager in Yes Bank scam had not adhered to know-your-client norms. Reacting to the raids, Kirit Somaiya, former MP and president, Investors Grievances Forum, said there was a need to appoint a task force to handle the biggest IPO scam of India. Panchal misused pictures NEW DELHI: A unique modus operandi was used to corner shares in IDFC and Yes Bank in which, Roopalben Panchal, one of the main accused, came out with an advertisement in local dailies asking public to click a photograph and also get two copies free of cost. The advertisment saw a large number of people gathering to avail this free service, but least did they know what the photographs would be used for. According to the CBI, the accused used to click photographs and keep one copy for opening fictitious bank and demat accounts. The modus operandi of Panchal was to obtain photographs of large number of people and once they were available, fictitious names along with these snaps were used to open fictitious bank and demat accounts. Then an application was made for allotment of these shares to the account holders. Once the allotment was made, the shares were transferred to Panchals account, who in turn passed them to financers.

Recommending the abolition of the secondary market seems a bit radical, but when you think of it, it is quite in keeping with government policy. For years, weve maintained a policy that mandates around a third of the shares allotted under any IPO have to be reserved for the small investor (defined as anyone who buys less than Rs 1 lakh worth of shares), never mind that the policy was always open to the kind of abuse we saw in the Rupal Panchal case in 2006 where she applied for IPOs in various names of small investors so as to ensure she got the amounts she wanted. Couldnt these small investors buy their shares in the secondary market when the share got listed after the IPO? Small by the way is a bit of an oxymoron since with less than 1 per cent of all Indians investing in equity, either directly or through mutual funds, clearly these investors arent the aam aadmi.