She's been making the headlines because of the humungous number of fictitious demat accounts that have been traced back to her, a little over 27,000 at last count (demat, or dematerialised, accounts need to be opened when an individual wants to buy or sell shares, which are held electronically in the account). But Roopalben Nareshbhai Panchal is by no means the first individual to be using this ploy to corner chunks of allotments to initial public offerings (IPOs). Consider for instance Purshottam Budhwani, who was ahead of Panchal in the benami demat account opening race by a day. Budhwani flagged off his spree on June 26, 2003, with 110 accounts, whereas Roopalben was off the block on June 27, with 196 accounts. The dates are significant because that was around the time the IPO of auto giant Maruti Udyog Ltd (MUL) received an overwhelming response from investors. The MUL issue eventually got oversubscribed nine times when it closed on June 19, 2003. And it's no surprise that Budhwani, who has seemingly deprived thousands of genuine retail investors from getting allotment, is now a suspect on the hit list of the Securities & Exchange Board of India (SEBI). The market watchdog suspects Budhwani has been a front for alleged operators and financiers abusing the IPO allotment process.

Budhwani's stratagem was simple: Open accounts in batches of hundred and thousands at different intervals. After the mid-2003 binge, Budhwani got into the act again in October 2004 by opening 424 accounts, and once again nine months later with 2,822 accounts. That's why this gentleman's role is suspected in garnering shares in many high-profile IPOs, including Shoppers' Stop, Provogue India and IL&Fs Investmart. In its first phase of investigations, SEBI is probing all IPOs post-June 2005; but the regulator will also investigate issues prior to that cut-off, considering many of these benami demat accounts came up in early 2003. Roopalben's high jinks pretty much mirror Budhwani's-2,166 in calendar 2003, and 6,807 in the following year, with hundreds of the accounts having popular last names such as Gandhi, Patel, Pandya and Rathod.

But in the midst of these names and mind-boggling numbers, it's easy to get caught up with Roopalben and Budhwani, thereby letting the bigger picture fade away. After all, these two entities are just the pawns in a very elaborate game plan that involves several other players, big and small. SEBI's preliminary findings reveal the role of a set of operators who masterminded the scam, possibly along with financiers who could have masqueraded as small investors by creating thousands of accounts, with the help of people like Roopalben and Budhwani, in the retail category. These investors used to get the shares back through off-market transactions before listing. Kirit Somaiya, President, Investors' Grievances Forum (IGF), demands that the real financial beneficiaries behind the multiple IPO scam should be first brought to book. "The profit pocketed by such operators should be distributed amongst the retail investors," suggests Somaiya.

Bahubali Shah, Chairman, Lok Prakashan Group and a publisher of Gujarat Samachar daily, is one of the 35 suspected financiers (or beneficiaries) banned from future IPOs, although Shah claims he has not received any notice from SEBI so far.

When asked whether he had indeed received Infrastructure Development Finance Company (IDFC) shares before listing in an off-market transaction, Shah shot back to BT: "I don't know Roopalben Panchal. I'm a genuine investor in the market and always invest in ipos under the high net-worth category." He adds that he does lend money in the market, but to companies and not to any individuals.

SEBI has also come down heavily on the depository participants (DPs) where the accounts are opened (stocks are held in electronic form in a depository, which has agents who are the DPs). "The fact that DPs failed to exercise even basic due diligence gives rise to a suspicion that they have actively colluded with the perpetrators," say sebi's preliminary findings. The regulator also smells the connivance of DPs and brokers, as most DPs also runs stockbroking businesses from the same premises. Example: Rajendra Jhunjhunwala's Pratik Stock Vision Pvt. Ltd, a broking-cum-depository firm near Dalal Street, which has, according to SEBI, played a key role in doling out thousands of demat accounts with fictitious names-all with a single address-in the Yes Bank IPO (the biggest fish, of course, in this IPO was Roopalben, who operated through 6,315 benami names, with Karvy as the DP and Bharat Overseas as the bank). Yes Bank, which offered shares at Rs 45, made its debut at Rs 60 per share in July 2005. That's a cool profit of Rs 15 per share on listing day for all investors, including the scamsters.

IGF's Somaiya: Wants the scam masterminds brought to book

In the meanwhile, an inspection by the National Securities Depository Ltd (NSDL), one of the country's two depositories which houses 72 lakh DP accounts, reveals Karvy Stockbroking's DP has more than 20,000 accounts where 150 different addresses were common (Karvy totally has 7.5 lakh accounts). But is there any ceiling on how many DP accounts a client can open? Motilal Oswal, Chairman, Motilal Oswal Securities Ltd, says there is no restriction in opening multiple demat accounts. "There are some 32 clients where we have seen multiple accounts numbering 140, but guidelines don't prevent investors from opening multiple accounts," reasons Oswal. A top official of HDFC Bank has responded by saying that multiple accounts had been opened at various points of time between 1999 and 2002, in compliance with SEBI's know-your-customer (KYC) norms prevailing at that point in time. They may be right, but even as DPs claim that there are not too many benami accounts, a massive drive is under way in the market to close these fictitious, dematerialised accounts before SEBI comes out with more names in a new set of IPOs.

Then there are the banks. Sources reveal that fronts like Roopalben and Budhwani first cracked the banking system to gain entry into the depository network. "It was easier to do that in the more remote branches or by colluding with branch managers. Once you can produce a bank certificate, it's easy to get a demat account," reveals a source. "There are also instances of bulk accounts being introduced by sub-brokers," adds the source. Adds C.B. Bhave, Managing Director, NSDL: "There is a genuine fear that if somebody breaks through the bank, he can easily break through the depository systems."

SEBI's M. Damodaran: Just the tip of the iceberg?

Roopalben had Bharat Overseas Bank as her bank for over 27,000 dematerialised accounts, with the account numbers bearing continuous serial numbers. Undoubtedly, banks played a key role in the IPO abuse. Many also extended loans to these fictitious entities possibly with the purpose of earning interest and other charges. Inspections by the RBI are already under way to find out if any of the banks involved violated the KYC norms. Bharat Overseas Bank, HDFC Bank, Indian Overseas Bank, ING Vysya Bank and Vijaya Bank are on the apex bank's watch list. "We are taking severe punitive, corrective and futuristic steps to avoid such recurrences in future," says G. Krishna Murthy, Chairman & MD, Bharat Overseas Bank, in which the benami account phenomenon was rampant. "Action is on the way," he threatens. Insiders claim suspension of officials and termination of branch licences, plus fraud charges against the customers who violated the system, are the penalties that could be slapped.

Bank of Rajasthan's Netivali Lokgram Kalyan Branch also figures in the list of multiple applications (157 of them) in the Yes Bank IPO.

P.K. Tayal, Chairman of the bank, counters by saying that all the 157 applicants in Yes Bank were financed by the Kalyan Branch. "The bank wanted to make sure that the refunds should go to the branch first as a precautionary measure," is Tayal's explanation.

Oswal: Says there is no bar on opening multiple demat acounts

High-profile merchant bankers-Kotak Mahindra Capital Co., DSP Merrill Lynch, Enam Financial Consultants and SBI Capital Markets-are also not above suspicion, along with the registrars to the issue, Karvy Computershare being the most prominent of them. "The role of every market intermediary is defined by SEBI. We strictly work under that framework," defends Indrajit Gupta, Managing Director, SBI Capital Markets, even as he refused to answer any other questions on IPO abuse. One merchant banker, on the condition of anonymity, passes the buck to the registrar. "It has always been the registrar's job to weed out multiple applications in an IPO," he says. An official at Karvy Computershare, however, claims that "the same address did not alert us because financiers tend to give single address. It's a common market practice".

Clearly the blame game will continue, with registrars pointing the finger at financiers, banks at DPs, and vice versa. After the Yes Bank investigation, SEBI has revived its MAPIN scheme-the market participants and investors integrated database to enhance investor protection- with biometric fingerprinting; more such measures are on the anvil both from SEBI and the RBI. Clearly the need of the hour is better compliance, and close coordination between the apex bank, the exchanges and the depository system. Meantime, Roopalben is absconding, and the income-tax authorities have got into the act by surveying all the entities named by SEBI. Somaiya calls for investigation of all involved entities "for manipulation of prices in the secondary market through multiple demat accounts". But if retail investors become sceptical of the entire IPO allotment process, irreparable damage might have already been done.