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| SEBI Chairman M. Damodaran |
They
get its inspection conducted by outside professionals. The inspection
reports are not indicative at all...Most of the 'inspections'
have been completed in a day's time. They call these inspections
as 'visits'. The use of the term 'visits' and not quoting the
bye laws under which inspections are being carried out may become
a legal hurdle if as a result of inspection penal action is required
to be taken."
Strong words these, of G. Anantharaman, Whole-time
Director, Securities & Exchange Board of India (SEBI). In
his 252-page report on the recent IPO (initial public offering)
scam involving multiple and fictitious DEMAT accounts, Anantharaman
has spared none. The depository participants (DPS), financiers
and key operators have all found unflattering mentions in the
lengthy order. But Anantharaman reserves a substantial quota of
his contempt for the depositories themselves-the "they"
in question, in the opening italicised para-the custodians of
the wealth of the Indian investor.
THE GLOVES ARE OFF
SEBI's crackdown is comprehensive
on paper. |
»
IPOs examined by SEBI: 105 (between 2003 and 2005).
» IPOs
under regulator's lens: 21 (including Suzlon, Jet Airways,
NTPC, TCS and Patni).
» Key
operators: 24 (including Roopalben Panchal). They facilitated
temporary parking of shares in their demat accounts, including
fictitious ones.
» Key
Financiers: 85 (The prominent ones are: Hasmukhlal, Welvet
Financials, Jayesh Khandelwal, Gautam Jhaveri, Excel Multitech).
» Number
of DEMAT accounts used to corner IPO shares: 58,938.
» Number
of DPs involved: 27 (including HDFC Bank and ICICI Bank).
» Key
DP route: Karvy (80 per cent, or 49,709 of the DEMAT accounts
were opened through Karvy).
» Depositories
slammed by SEBI: Both NSDL and CDSL. |
The two depositories, the BSE's (Bombay Stock
Exchange's) Central Depository Services Ltd (CDSL) and the National
Securities Depository Ltd (NSDL), promoted by IDBI (Industrial
Development Bank of India), UTI (Unit Trust of India) and the
NSE (National Stock Exchange), between themselves are home to
a little over $590 billion (Rs 26,55,000 crore) of investor money
held in, at last count, 75 lakh depository accounts. According
to Anantharaman, the IPO scam could have been averted had the
two depositories taken action way back in 2003 when the fraud
was just beginning. In a scathing attack in its interim report,
the market regulator has said that "NSDL was aware of the
irregularities in connection with opening of accounts from the
year 2003 which is evident from the inspection report of HDFC
Bank, Karvy Stock Broking etc." The key operators, including
Roopalben Panchal and Purshottam Budhwani, used the bank account-opening
certification in a majority of the cases to open fictitious DEMAT
accounts running in thousands between 2003 and 2005. "They
(NSDL) failed to take prompt action against the DPS and failed
to inform SEBI of the same," says the report.
SEBI says NSDL and CDSL were aware of the
existence of account opening without a proper know-your-customer
process as early as 2003 but hasn't yet put in place a system
to detect such accounts. Roopelben started with a few hundred
accounts right after the Maruti Udyog IPO and soon opened thousands
of fictitious accounts which went unchecked. "It is felt
that the depositories have turned a blind eye to deficiencies
in the system which has led to the recurrence of error in account
opening repeatedly, in a big way later," observes SEBI.
If SEBI's charges hold water, investor confidence
will surely take a huge knock.
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