2009 (9) TMI 1063 - AT - SEBI

Summary

Issues Involved:
1. Alleged abuse and misuse of the Initial Public Offering (IPO) allotment process.
2. Alleged violation of Section 12A of the Securities and Exchange Board of India Act, 1992, Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, and the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.
3. Directions for disgorgement and prohibition from accessing the securities market.
4. Imposition of monetary penalty under Chapter VIA of the Act.

Summary:

1. Alleged abuse and misuse of the IPO allotment process:
The Securities and Exchange Board of India (SEBI) initiated a probe into the alleged misuse of the IPO allotment process. Investigations revealed that certain entities had cornered IPO shares reserved for retail investors by making applications through thousands of fictitious/benami applicants. Specifically, the appellant received 10160 shares of Suzlon Energy Limited from 635 different demat accounts in off-market transactions. It was found that 61 persons filed 635 multiple applications for 96 shares each, financed by the appellant, who routed money through 22 different bank accounts.

2. Alleged violation of Section 12A of the SEBI Act, 1992, Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, and the SEBI (Disclosure and Investor Protection) Guidelines, 2000:
The appellant was alleged to have violated Section 12A of the SEBI Act, 1992, Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, and the SEBI (Disclosure and Investor Protection) Guidelines, 2000. The show cause notice alleged that the appellant financed multiple applications, cornered shares, and made windfall gains by selling them at a higher market price post-listing.

3. Directions for disgorgement and prohibition from accessing the securities market:
The whole time member concluded that the appellant manipulated the retail segment of the Suzlon IPO, distorted market integrity, and made an unlawful gain of Rs. 33,52,636/-. Consequently, the appellant was directed to disgorge the said amount with interest at 10% and was debarred from accessing the securities market for three years. The findings were based on the fact that the appellant financed the applications, received shares in off-market transfers, and sold them at a profit.

4. Imposition of monetary penalty under Chapter VIA of the Act:
The Adjudicating Officer imposed a monetary penalty of Rs. 55 lacs on the appellant for her wrongful acts. The penalty was based on the profit made by the appellant from the sale of the shares. The appellant's argument that there was no prohibition on making multiple applications was rejected. The guidelines clearly specified the reservation for retail individual investors, and the appellant's actions were found to be fraudulent and in violation of the regulations.

Conclusion:
Both appeals were dismissed, and the findings of the whole time member and the Adjudicating Officer were upheld. The appellant was required to disgorge the unlawful gains and was penalized for her fraudulent conduct. The Board was awarded costs of Rs. 50,000/- in both appeals.