STOCK MARKET IPO SCAM IN INDIA

The Securities and Exchange Board of India (SEBI), the capital market watchdog, Thursday cracked down on some of the top brokerage firms and banks for their alleged involvement in an initial public offering (IPO) scam.

SEBI conducted investigations in respect of all the IPOs from January 2003 to December 2005.

The findings of investigations, prima facie, revealed violations of serious nature by several key operators, their financiers, concerned depository participants and the depositories.

In its order, SEBI has barred brokerage firms like Karvy Stockbroking and IndiaBulls from the market. It has also directed HDFC Bank and IDBI Bank not to open new demat accounts for share transactions. SEBI's Order fallout:

24 entities banned from primary and secondary market, including Indiabulls, Karvy Securities

• Quasi-judicial proceedings against Karvy DP and Pratik DP, banned from the market

• 12 DPs can’t open fresh demat accounts, including HDFC Bank, IDBI Bank, Central Bank, ING Vysya Bank, IL&FS and Motilal Oswal; 15 more under scrutiny, including ICICI Bank, Citibank, Stanchart

• 85 Financiers barred from the market.

SEBI said certain entities had cornered shares reserved for retail applicants in the name of fictitious entities in the initial public offerings of Yes Bank and Infrastructure Development Finance Company (IDFC).

Each of the fictitious application was of small value so as to be eligible for allotment under the retail category, it added.

After the allotment, these fictitious beneficiaries transferred these shares to their principals who in turn transferred the shares to their financiers.

The financiers in turn sold most of these shares on the first day of listing, thereby realizing the windfall gain of the price difference between IPO price and the listing price.