The initial public offers (IPOs) of companies like Tata Consultancy Services (TCS), NTPC and Jet Airways were rigged and scamsters gained close to Rs 100 crore between 2003-05, market regulator Sebi-appointed panel has said.
The panel headed by retired Supreme Court judge D P Wadhwa also recommended that the money be recovered from the culprits and distributed among retail investors. If implemented, it would create history in terms of compensating investors who lost out on share allotment.
According to the Wadhwa Committee report, scamsters gained Rs 95.69 crore and suggested that the money could be recovered from their frozen demat accounts, which hold Rs 147.85 crore worth of shares and Rs 1.2 crore in the bank accounts frozen by CBI.
The committee was set up by regulator Sebi to probe irregularities in IPOs floated during 2003-2005 including those of TCS, Jet Airways, Suzlon Energy, NTPC, Yes Bank and Shoppers Stop.
The preference will be given to those retail applicants who did not get any share because of cornering of shares by scamsters who created fictitious demat accounts. Investors who got a few shares will also be eligible for compensation, the report suggested.
If recommendations are accepted, Prithvi Haldea of Prime Database said, "This will be a landmark judgement because this is for the first time in the history of Indian capital market, the losing investor will be compensated for their losses."
The scam in 21 IPOs, which were investigated, related to alleged cornering of shares reserved for retail investors by scamsters through opening of fictitious accounts.
The committee said for the purpose of payment to the deprived retail applicants, the amount which is the difference of closing price of shares on the first day of listing/trading at NSE and the IPO issue price will be considered.
"These applicants will not be entitled for the market price movements subsequent to the listing," said the committee headed by former Supreme Court judge D P Wadhwa.
It recommended that 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 left-over money shall "spill over" and would be reallocated to the partly successful applicants, the committee added.
"This would help bring back investors' confidence. He would know that if he is cheated, the fraudsters are not only punished but his loss is also compensated," Haldea said.
Unlike the IPO demat scam case, where identifying the victims is relatively easy, there are numerous frauds where fraudsters, if caught, get punished but the deprived lot is not compensated as they are difficult to identify, he said.
Former Finance Minister P Chidambaram had assured Lok Sabha that steps would be taken to reallocate shares to people who had lost out on allocation of shares on account of the IPO scam.
