Scams..Scams..IPO Scams

Again SEBI hits the news with IPO scams. Previously it made a big news, in the entire Equity market in India and also even a novice user in market isvery wary about it. This time again SEBI had come up with some major stock market traders, but the companies in the flashing limelight are Karvy(Read About Scam) and IndiaBulls(Read about Scam).

Previously it had alleged IDFC (Read About Scam), Yes Bank ( Read About Scam )for IPO scams stating that these banks provided about 14,000 illegal demat accounts for some investors in the name of their benami or ficititious name.

Also SEBI said, 23 other DP entities such as ICICI Bank, Kotak Securities, Citibank, Motilal Oswal, ING Vysya Bank, HDFC Bank, IDBI Bank, IndusInd Bank etc. are alleged that these DPs had allowed customers to hold more than 500 accounts sharing the common address.
Source: TheHindu

This time SEBI had put it’s Steel arm to stop Karvy stock brokerage, one of the famous stock brokerage, to stop it’s venture in IPO, which had left Karvy in vacuum. Indiabulls, which again in the prima facie, would face severe charges in this IPO Scam. When SEBI announced that these companies can trade in the market on behalf of the customers, gave a big relief for the customers after the charges news.

Nowadays IPO scams seems to be very frequent and usual term. In the world, where it is filled with scams and fraudulences, that too especially when it comes for money, the height of frauds normally occur in the order of thousands of crores.

Basically, when we look into what is an IPO ( Intial Public Offering ) Scam, it is routing of the IPO shares which are pooled into multiple accounts held by the single person under a various ficititious names, to a one single account which is claimed to be real account held by the same person.It makes real account holder to be benefited to the maximum, leaving the hopes of lots of retail investors in dismay.

Now it’s a Bull run market and it’s the time for companies to encash by releasing the IPOs. People are today very much aware of what a stock market is, what does it do with , and frequently twist their tongue with the financial jargons. So, now the IPOs which are released by the companies to float money for their growth and development, makes lot of retail investors end up empty handed due to the fraudulent attempt made by a few Investors.

The question of how they do it is very interesting. Simple, by opening multiple demat accounts with the demat service provider. SEBI had freed up it’s rules to open up multiple demat accounts for an investor. The reason it was because, one investor can join hand with other person to buy shares,and in such case same person could have his/her name in multiple accounts. There is no legal bar on opening multiple accounts for a single person, something like opening multiple bank accounts for a single person.

What happens when a person holds multiple Demat account? He is now eligible to apply for IPO using multiple demat account, and after the IPOs gets listed, the shares would be allocated to lot of accounts which are applied for, and finally that person may / may not transfer all the shares to one account from the various account that person holds.

SEBI had put Know Your Customer ( KYC )policy to ensure that no fictitious demat accounts has been opened up for a single customer. But banks and other DP service providers doesn’t seems to follow up this policy, if they had done it, they could at-least minimize the volume of the scam accounts.

SEBI has to bring strong rule in the place of opening multiple demat account. SEBI has to nail down strongly on the scamsters, atleast this time with strong rules and policies.

More on IPO Scams write up :


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