IPO scam profits for victims: Sebi

The Committee set up by Securities and Exchange Board of India (SEBI) to probe irregularities in initial public offers (IPOs) floated during 2003-2005 has recommended recovering the gains made by the scamsters and distributing it among affected investors.

The committee, headed by Justice D.P. Wadhwa, said scams that hit 21 IPOs in the period resulted in unlawful gains of 

Rs 95.69 crore. The panel valued frozen shares of scamsters at Rs 147.85 crore and balance in their bank accounts frozen by CBI at Rs 1.2 crore as on October 31, 2007. 

The committee recommended quantifying reallocation of shares to deprived applicants in monetary terms, based on the shares’ closing price on the first day of listing. 

"These applicants will not be entitled for the market price movements subsequent to the listing," said the report of the committee.

The reallocation would initially be as number of shares and would be replaced with the value calculated on this basis.

The committee also recommended ‘spill over’ method for reallocation of shares. Those who did not get any shares should be reallocated money equally from the recovered amount, till they each receive the gains from minimum shares allotted to the lowest category in the IPO. Once that number is reached, any leftover money shall be reallocated to partly successful applicants.

The IPOs in which the scam took place included Jet Airways, NTPC, IDFC, TCS, Yes Bank, Gokaldas Exports, ILFS Investsmart, Suzlon Energy and Shoppers' Stop. 

The scamsters had cornered shares reserved for retail investors by opening fictitious accounts, thus depriving genuine investors, noted the report.

The committee also noted that until pending litigation is disposed of, it would not be possible to determine the number of deprived applicants or to recover any assets from the scamsters.

“Therefore, the recommendations of this Committee are stated as principles. The actual implementation will be based upon the facts as they finally prevail,” the Committee said. 

Former Finance Minister P Chidambaram had assured Lok Sabha that steps would be taken to reallocate shares to persons who had lost out on allocation of shares due to the scam.

Hindustan Times, New Delhi, 30-12-2009