Stock scam: Investors to get compensation

For the first time in the history of the stock market, investors who lost out on allotment of shares due to a scam will receive compensation from money recovered from scamsters.

Finance Minister Pranab Mukherjee will on Monday hand over the cheques to investors who lost out because scamsters cornered the shares meant for retail investors in initial public offerings (IPO) during 2003-05.

The money was recovered through a process called 'disgorgement'. The function, during which the first set of cheques will be presented to the investors, will also be attended by Corporate Affairs Minister Salman Khurshid and market regulator C B Bhave.

Scamsters cornered shares meant for retail investors in 21 IPOs, including IDFC, NTPC, TCS, YES Bank and Suzlon Energy, during 2003-05 by opening multiple fictitious demat accounts.

According to Justice Wadhwa Committee set up by Sebi, scamsters gained Rs 95.69 crore (Rs 956.9 million) in the IPO scam. The committee recommended that those who did not get any shares should be reallocated money equally from the recovered amount, till they each receive the gains from minimum shares allotted to the lowest category in the IPO.

Once that number is reached, any left-over money shall spill over and reallocated to the partly successful applicants, the committee said.

The committee said for the purpose of payment to the deprived retail applicants, the amount which is the difference of closing price of shares on the first day of listing/trading at NSE and the IPO issue price will be considered.

On the recommendation of the committee, Sebi has appointed a former chief commissioner of income-tax, Vijay Ranjan, as administrator for reallocation of unjust gains in the IPO scam (2003-05) to the unsuccessful retail applicants.

Former Finance Minister P Chidambaram had assured Lok Sabha that steps would be taken to compensate persons who had lost out on allocation of shares on account of the IPO scam.