Financial service provider Enam Securities has been fined Rs 25 lakh by the Securities and Exchange Board of India (Sebi) for alleged failure to follow proper due diligence while making disclosures in offer documents and giving preferential treatment to certain institutional investors during allotment of shares.
In its 26-page order issued on Friday, the capital market regulator, Sebi, listed various failures on Enam’s part while performing its functions as a merchant banker. It inspected Enam’s books, records and other documents from August 16, 2005 to August 30, 2005.
Sebi had sent Enam a show-cause notice on June 14, 2007. “The noticee had failed to exercise due diligence and did not make adequate disclosures while providing bidding facilities through alternate modes... the noticee had failed to exercise due diligence with reference to certain disclosures made in the offer documents,” said the notice.
It was also alleged in the notice that Enam gave preferential treatment to a set of foreign institutional investors (FIIs) while allotting shares in an initial public offer (IPO).
“It was alleged that FII such as Goldman Sachs, BSMA, UBS, etc have been given preferential treatment in allotment of shares. It is further alleged that there is no consistency in allotment of shares within the same category. In this regard, it was also alleged that the noticee had failed to fulfill its obligations as a merchant banker in a professional and diligent manner,” noted the order.
In the case of Yes Bank IPO, shares were allotted to applicants having non-existing DP IDs (depository identity), among other irregularities. “The noticee had failed to exercise due diligence in properly monitoring the flow of applications and other matters pursuant to closure of the public issues,” said the order.
Enam is also alleged to have failed in the assigned duties as post-issue lead manager to the public issues to redress investor grievances within the stipulated period. “For example, it was noted in the IPO of Bharti Shipyard Ltd, that out of the total 859 complaints pertaining to the issue, even eight months after the date of allotment, 35 investor complaints were still shown as pending,” explained the order.
