Mumbai: Capital market regulator SEBI has imposed a penalty of Rs 20 lakh on one Biren Kantilal Shah for his alleged fraudulent trade practices in IPOs of Suzlon Energy and Infrastructure Development Finance Co Ltd (IDFC) in 2005.
SEBI said Shah acted as a "key operator", in concert with certain other entities and was involved in the scheme of cornering of shares in the Intial Public Offers (IPOs).
"It is observed on the basis of investigation report that Biren Kantilal Shah made a total ill gotten gain of Rs 24.10 lakh while dealing as key operator," SEBI said in an order dated December 18.
SEBI said Shah "had indulged in fraudulent and manipulative activities and employed deceptive device and scheme to corner the shares reserved for retail individual investors in the aforesaid two IPOs with the intention to defraud retail individual investors".
The case relates to a SEBI probe in shares of certain companies during their IPOs between 2003 and 2005 wherein it was found that certain entities had opened large number of demat accounts and bank accounts which were in the names of fictitious persons or were benami.
The entities had acquired shares of various companies in the IPOs by making applications in fictitious names with each application being of a value so as to make it eligible for allotment under the retail category.
Following the allotment, the shares from such fictitious allottees were transferred in the demat account of key operators like Shah before the listing on stock exchanges, SEBI said.
The key operators then transferred the shares through off market deals to certain entities called the "financiers".
SEBI said it noted that in some cases the key operators retained a portion of shares for themselves which were then sold in the market, earning them huge gains illegally.
As per SEBI, the scheme was designed to corner shares from the quota reserved for retail investors in the IPOs of various companies and to make profit by selling the shares.
In August 2010, SEBI had directed Shah to disgorge an amount of Rs 30.61 lakh which included the Rs 24.10 lakh gains he allegedly made through the illegal trading IPO shares.
Thereafter, SEBI had imposed a penalty of Rs 5 lakh on Shah for his failure to disgorge the said amount.