IPO scam: SAT asks Sebi to pass fresh order against individual

Setting aside Sebi order against an individual in the case related to infamous IPO scam of 2003- 05, the Securities Appellate Tribunal today asked the market regulator to look afresh at the matter, maintaining that the accused can't be allowed to go scot-free.
Securities and Exchange Board of India had in 2012 imposed a penalty of Rs 1.50 crore on one Purshottam Budhwani for fraudulent activities related to initial public offerings (IPOs) of 13 companies including IDFC, Yes Bank, Suzlon and IL&FS, back in 2005.
Budhwani subsequently approached the tribunal challenging the Sebi ruling against him.
While quashing the Sebi order today, the tribunal noted however that Budhwani had admitted to committing the violations and could not be allowed "to go scot-free" due to "technicalities and non-application of mind by (Sebi) Adjudication officer".

Accordingly, SAT has remanded the case back to Sebi for afresh look.
"The case is remanded back to respondent (Sebi) for issuing a fresh show cause notice, incorporating all details of wrong doing and making allegations based on firm figures of shares obtained by appellant (Budhwani), shares sold and shares retained by appellant and that allegation should be based on violation of Sebi Act and Regulations...," it said.

The tribunal observed, among other things, that Sebi's earlier show cause notice to Budhwani contained frugal details and that the notice was issued "in garb of supplementary material letter" which had no legal sanction.

A probe by Sebi had found Budhwani to be "key operator" or "master account holder" in the IPO scam.
As per Sebi findings, Budhwani had opened a large number of demat accounts and bank accounts which were in the names of non-existent persons (benami).
Further, he had acquired shares of various companies in IPOs during 2005, by making applications in benami names with each of the application being of such a value so as to make it eligible for allotment under the retail category.
Subsequent to the allotment of shares in IPOs, shares from demat account of such benami allottees were transferred in his demat account before the scrips got listed. These shares were then transferred through off- market deals to certain entity referred to as "financier".

The entire scheme was designed to corner shares from the quota reserved for retail investors in the IPOs of 13 firms and to make profit by selling the shares.