Compensation likely for small investors hit by IPO scam

Retail applicants who did not receive allotments in the scam-hit initial public offers of 2003-2005 could yet stand to get some benefits, with the Securities and Exchange Board of India proposing to initiate the distribution of illegal gains made by the scam perpetrators.

Making public the Justice D P Wadhwa Committee report on the scam two years after it was submitted, SEBI said on Tuesday that it proposes to initiate administrative steps for the reallocation of the disgorgement amount it has collected so far from various key operators. It has identified 21 such IPOs, including those of IDFC, NTPC, TCS, YES Bank and Suzlon Energy.

The Wadhwa Committee was constituted in July 2007 to advise on and recommend the procedure for the identification of persons who might have been deprived of allotment on account of the IPO irregularities, and the manner of compensation to them.

The totally unsuccessful applicants will be compensated first. The report has recommended that the amounts to be allocated will be computed as the "difference between the closing price of shares on the first day of listing/ trading on the National Stock Exchange and the IPO issue price."

Every such applicant will receive the gains associated with the minimum shares allotted to the lowest category in the IPO. After this payment is made, any surplus available will be reallocated to the partly successful applicants and thereafter to those in the "drawing of lots".

The committee has suggested that the number of shares allotted to 'afferent' applicants (to key operators/financiers) will be treated as unjust allotments. It has estimated the total unjust gains at about Rs95.69 crore across the 21 tainted IPOs.