Compensating duped IPO investors
Thousands of retail investors, who lost out due to manipulation by a few operators and entities in a string of initial public offerings between 2003 and 2005, may soon be in a position to know whether they are in line to be compensated.
By TNN |
MUMBAI: Thousands of retail investors, who lost out due to manipulation by a few operators and entities in a string of initial public offerings between 2003 and 2005, may soon be in a position to know whether they are in line to be compensated. Capital markets regulator, Sebi, has constituted a group headed by justice Wadhwa to consider whether it is feasible to compensate investors by disgorging gains made by over 20 entities. An official said that the group has a mandate to spell out the process to be adopted to compensate investors who lost out in several IPOs after some operators cornered shares by opening demat accounts in fictitious names.
The process of disgorgement, which is the repayment of ill-gotten gains by those who violate securities laws to persons hurt by their actions, is fairly common in the world’s biggest securities market — the US. In India, the government is now proposing to arm Sebi with powers to disgorge through amendments to the Sebi Act. Finance minister P Chidambaram has been clear that retail investors ought to be compensated for their losses to send out a strong signal to those who attempt to violate securities law and to protect the integrity of the market.
Sebi had identified 21 IPOs that hit the market between 2003 and 2005 in which certain entities had manipulated the allotment process for retail investors. This was done by making applications in the retail category (for those investing up to Rs 1 lakh) through thousands of fictitious applications. After the shares were allotted, they were transferred by these applicants to their financiers who sold it on the first day of listing, making windfall gains.
The list of 21 IPOs in which retail investors lost out include — IDFC, Yes Bank, NTPC, Suzlon, TV Today, TCS, Jet Air, Shoppers Shop, Amar Remedies, Datamatics Tech, Dishman Pharma, FCS Software, Gateway, Gokaldas Export, IL&FS Investmart, Indraprashta Gas, Nectar Life Sciences, Patni Computer, Sasken Communication Technology and Nandam Exim.
In an order issued by one of the members of Sebi, G Anantharaman, the depositories — NSDL and CSDL — besides depository participants were told to disgorge from those who had enriched themselves at the cost of retail investors. The disgorgement amount was worked out based on the difference between the listing day price of the IPO and the price at which shares were allotted to investors. However, the issue in now under litigation.
The process of disgorgement, which is the repayment of ill-gotten gains by those who violate securities laws to persons hurt by their actions, is fairly common in the world’s biggest securities market — the US. In India, the government is now proposing to arm Sebi with powers to disgorge through amendments to the Sebi Act. Finance minister P Chidambaram has been clear that retail investors ought to be compensated for their losses to send out a strong signal to those who attempt to violate securities law and to protect the integrity of the market.
Sebi had identified 21 IPOs that hit the market between 2003 and 2005 in which certain entities had manipulated the allotment process for retail investors. This was done by making applications in the retail category (for those investing up to Rs 1 lakh) through thousands of fictitious applications. After the shares were allotted, they were transferred by these applicants to their financiers who sold it on the first day of listing, making windfall gains.
The list of 21 IPOs in which retail investors lost out include — IDFC, Yes Bank, NTPC, Suzlon, TV Today, TCS, Jet Air, Shoppers Shop, Amar Remedies, Datamatics Tech, Dishman Pharma, FCS Software, Gateway, Gokaldas Export, IL&FS Investmart, Indraprashta Gas, Nectar Life Sciences, Patni Computer, Sasken Communication Technology and Nandam Exim.
In an order issued by one of the members of Sebi, G Anantharaman, the depositories — NSDL and CSDL — besides depository participants were told to disgorge from those who had enriched themselves at the cost of retail investors. The disgorgement amount was worked out based on the difference between the listing day price of the IPO and the price at which shares were allotted to investors. However, the issue in now under litigation.
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