Securities and Exchange Board of India (SEBI) Chairperson, Madhabi Puri Buch, announced on January 19 that the regulatory body is currently conducting a comprehensive investigation into the use of mule accounts and the submission of faulty IPO applications, to uncover instances where these practices create misleading impression of high subscription levels.
Buch disclosed that three specific cases are currently under scrutiny, although the nature of the investigation and whether the cases pertain to mainboard IPOs or SME IPOs remains undisclosed.
Expressing dissatisfaction with the observed malpractices in the IPO space, Buch highlighted the involvement of certain merchant bankers in these activities and emphasized the need for additional data to address the issue comprehensively.
Speaking at the AIBI Annual Convention 2023-24, Buch delved into the distinct characteristics of SME IPOs. She underscored the purpose of having a separate board on both exchanges, stressing the importance of making investors aware that the characteristics of companies listed on SME boards differ significantly from those on the mainboard.
Furthermore, Buch shed light on the manipulation of SME IPOs, revealing how promoters collaborate with operators to entice willing IPO applicants into selling their applications.
This often occurs through compensation methods such as "subject to" or fixed costs. Additionally, she highlighted the tactic of intentionally submitting applications that are prone to rejection to artificially inflate subscription numbers and attract retail investors.
Such manipulations typically involve inaccuracies in PAN numbers or the use of the same PAN number in multiple applications.
While the SEBI Chairperson did not disclose specific actions against those found guilty of malpractices in the IPO markets, she clarified that policy and enforcement actions are distinct, leaving the determination of appropriate actions to the investigating parties.
This revelation follows previous reports on the rigging of SME IPOs, where collusive efforts between promoters and operators were exposed.
The ongoing investigation by SEBI underscores the regulatory commitment to maintaining the integrity and transparency of India's IPO markets
