MUMBAI: A couple of years back, thousands of small investors who had flocked to IPOs found no shares coming their way. Reason: A clutch of operators had cornered the shares meant for them. Now, after a detailed regulatory probe and a committee to resolve the issue, the modalities to compensate these investors are nearly final.
Capital market regulator Securities and Exchange Board of India (SEBI) is set to issue caonsent orders to settle the enforcement action it had initiated against entities responsible for cornering shares meant for retail investors in 21 IPOs in 2005-06. By settling the proceedings against those who had allegedly violated securities laws, the regulator will be in a position to disgorge the gains made by them.
The shares of these operators, which have been frozen by the depositories, will be sold and the proceeds utilised to compensate retail investors who had applied for shares in IPOs such as IDFC, Jet Airways, NTPC and Suzlon Energy.
A SEBI probe blew the lid off the scam in 2006. The investigation showed that in 2005-06, a clutch of operators had filed thousands of fictitious applications in several IPOs, posing as retail investors. Thousands of bank and demat accounts were opened in the names of fictitious individuals to facilitate the plan. Once the scam came to light, depositories froze these shares on SEBI’s orders.
Once they were allotted shares, the operators transferred these shares to another set of players, who in turn, passed them to financiers who had provided the funds for investing in the IPOs. These shares were sold on the first day of listing, helping these operators reap a windfall — the difference between the IPO price and the listing price.
The value of the frozen shares is estimated at Rs 60-90 crore. A committee headed by Justice Wadhwa, which was appointed by SEBI to work out an equitable method for compensating retail investors, had come up with a figure of Rs 92 crore. The figure was based on the closing price of stocks of 21 IPOs on listing day.
The committee had said that retail applicants who did not get anything should be paid the difference between the offer price and the closing price on listing day. According to the committee, the differential could be taken as a proxy for the unjust gains made by the scamsters, who cornered shares meant for individual investors.
Capital market regulator Securities and Exchange Board of India (SEBI) is set to issue caonsent orders to settle the enforcement action it had initiated against entities responsible for cornering shares meant for retail investors in 21 IPOs in 2005-06. By settling the proceedings against those who had allegedly violated securities laws, the regulator will be in a position to disgorge the gains made by them.
The shares of these operators, which have been frozen by the depositories, will be sold and the proceeds utilised to compensate retail investors who had applied for shares in IPOs such as IDFC, Jet Airways, NTPC and Suzlon Energy.
A SEBI probe blew the lid off the scam in 2006. The investigation showed that in 2005-06, a clutch of operators had filed thousands of fictitious applications in several IPOs, posing as retail investors. Thousands of bank and demat accounts were opened in the names of fictitious individuals to facilitate the plan. Once the scam came to light, depositories froze these shares on SEBI’s orders.
Once they were allotted shares, the operators transferred these shares to another set of players, who in turn, passed them to financiers who had provided the funds for investing in the IPOs. These shares were sold on the first day of listing, helping these operators reap a windfall — the difference between the IPO price and the listing price.
The value of the frozen shares is estimated at Rs 60-90 crore. A committee headed by Justice Wadhwa, which was appointed by SEBI to work out an equitable method for compensating retail investors, had come up with a figure of Rs 92 crore. The figure was based on the closing price of stocks of 21 IPOs on listing day.
The committee had said that retail applicants who did not get anything should be paid the difference between the offer price and the closing price on listing day. According to the committee, the differential could be taken as a proxy for the unjust gains made by the scamsters, who cornered shares meant for individual investors.
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