Sebi panel to compensate IPO scam victims

Creating history in terms of compensating the investors who lost out on share allotment due to the IPO scamsters, the Justice Wadhwa Committee has suggested that Rs 149.06 crore should be recovered from the frozen demat accounts of scamsters in two depositories and should be distributed among scam-hit retail investors.

In the interim, Sebi said it proposes to initiate administrative steps for reallocation of the amount it has collected.

The committee headed by retired Supreme Court jud-ge, Justice D.P. Wadhwa, was set up by the Securities and Exchange Board of India (Sebi) to probe irregularities in IPOs floated during 2003-2005 including those of TCS, Jet Airways, Suzlon Energy, NTPC, Yes Bank and Shoppers Stop.

Citing that many IPOs are set to enter the capital markets, Mr Jagannadham Thunuguntla, the equity head of SMC Capital: “If the Wadhwa Committee’s recommendations are implemented, then it would help to boost the confidence among the retail investors. For the first time, the retail investors, who lost the opportunity to earn money due to the scamsters, will be compensated.”

It would also help to keep a check on future scamsters, he added.

While executing this scam, the key operators/financiers created fictitious demat accounts in fictitious names and deprived the genuine retail investors of allotments of shares in IPOs. According to the Wadhwa Committee report, scamsters made a profit of Rs 95.69 crore. The frozen demat accounts hold Rs 147.85 crores worth of shares and Rs 1.2 crores in the bank accounts were frozen by CBI.

The Wadhwa Committee has recommended that preference should be given to those retail applicants who did not get any share because of the cornering of shares by the scamsters, who created fictitious demat accounts. Investors who got few shares should also be eligible for compensation, the report suggested.

For the purpose of payment to the deprived retail applicants, the committee has suggested that the amo-unt which is the difference of closing price of shares on the first day of listing at the NSE and the IPO issue price will be considered.

Modus operandi
Key market operators allegedly opened thousands of fictitious or benami demat accounts and applied for shares in the retail category. After the allotment, fictitious allottees transferred the shares to their financiers (who made funds available) through a web of transactions. The financiers sold most of these shares on the day of listing to book profits.

Irregularities found in
* Amar Remedies
* Datamatics Technologies
* Dishman Pharma
* FCS Software Solutions
* Gateway Distriparks
* Gokaldas Exports
* ILFS Investment
* Indraprastha Gas
* IDFC
* Jet Airways (India)
* Nandam Exim
* NTPC
* Nectar Lifesciences
*Patni Computer Systems
* Sasken Communication Technologies
* Shoppers Stop
* SPL Industries
* Suzlon Energy
* T.V. Today Network
* Tata Consultancy Services
* Yes Bank

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