CBI Chargesheets 22 In '06 IPO Scam

MUMBAI: The Central Bureau of Investigation (CBI) has filed chargesheets against 22 persons involved in the 2006 IPO scam. Officials of Bharat Overseas Bank, Indian Overseas Bank, Karvy Shareholdings, Karvy Consultants and Karvy Computers figure in the chargesheet.

The CBI began its investigation after the market regulator filed two complaints with the agency in 2006, alleging that thousands of fictitious applications had been submitted to corner shares set aside for retail investors in IPOs of various companies.

SEBI had, in 2006, exposed the IPO scam after an investigation by its surveillance division indicated the involvement of several operators. According to CBI, the motive of the dubious exercise was to corner shares that would have been allocated to retail investors.

The modus operandi was to download photos from websites such as shaadi.com for preparing fake applications and corner the shares that would have been rightfully allocated to retail investors. The CBI believes about 1.2 crore shares have been cornered this way. Bank accounts and demat accounts have been opened using forged documents for facilitating the dubious operation.

The CBI states in the chargesheet that the depository participants took no tangible steps to verify the authenticity of these applications. In some cases, some 5,000 persons have been named as joint holders of one account.

Instead, the CBI alleges, they connived with middlemen to provide funds. In several instances, the bidding was done without subscription money. The registrar to the issue had allegedly accepted the share application forms, which were not accompanied by the local cheques/DD, a mandatory requirement.

Still, shares were allotted to these fictitious applicants. However, since the persons did not exist, delivery instructions slips (DIS) were forged to show transfer of shares to the demat accounts of the middlemen. This was made possible as the same market intermediary performed multiple functions of depository participant, syndicate members, financiers and registrar.

The officials of Bharat Overseas Bank and Indian Overseas Bank who had allegedly flouted the know your client (KYC) norms and those of the Karvy companies are among the 22 persons chargesheeted by CBI in this connection.