SEBI set to fine 7 investment bankers for ‘shoddy work’

He added that arbitration proceedings against Enam
and Kotak pertain to YES Bank and IDFC IPOs dating back to 2006. A SEBI probe
had revealed a scam involving manipulation of retail category in these IPOs. DSP
Merrill Lynch was also rapped by SEBI for the YES Bank IPO, as the regulator’s
inspection showed that the details of the promoters as mentioned in the IPO
document were different from those filed with the Reserve Bank of India.

HSBC and SBI Caps were charged with failure in
disclosing key details in open offers managed by them. In some cases, the
regulator has found 10-15 lapses in the offer documents, the official said. In
several cases, bankers have not followed the prescribed procedures while
conducting due diligence, said SEBI officials. SEBI Chairman C. B. Bhave had
told ET, in an interview shortly after taking over, that one of the issues SEBI
was actively looking at was to make merchant bankers more responsible,
post-issue.

In some cases, the merchant bankers had not even
verified the plant and machinery of the companies, the issues of which they had
managed. Besides, litigation against the company directors was not mentioned in
the public issue documents. Errors were also noticed in financial details
provided in the documents.

SEBI’s inspection also found serious deficiencies
in some IPOs. For instance, in one IPO, the regulator found out that the
post-issue capital of the company was higher than its authorised capital — a
clear indication of poor due diligence carried out by the issue’s merchant
banker. The same mistake was found in Weal Infotech IPO’s case and the regulator
has pulled up the merchant banker to the issue, Aryaman Financial.

SEBI has taken a grim view of the fact that
merchant bankers, who are entrusted with the task of vetting a public issue,
have failed to discharge their responsibilities fully, which is detrimental to
the interest of investors. Five of the merchant banks who were served notice by
SEBI declined to comment on the issue when ET contacted them. Keynote Financial
said it had not received any notice from the regulator. Officials of Aryaman
Financial were not available for comment.

It is not only in IPOs that serious lapses on the
part of merchant bankers were detected. Even in case of open offers, SEBI has
indicted merchant bankers. The market watchdog has taken HSBC to task on the
Garware Offshore open offer. In this instance, SEBI found out that the open
offer document did not furnish important details of the target company. The
offer was made by India Star Mauritius and the financial details of the
acquiring company were not given in the offer document.

Even the company’s paid-up capital was wrongly
mentioned in the financial data, officials said. SEBI has prescribed a standard
letter of offer containing various financial and other parameters of the
company. In fact, HSBC was given a warning by the regulator in an earlier case.

SEBI has moved against SBI Caps for the investment
bank’s failure to provide a vital piece of information about a company in the
open offer document. The open offer was made by a company listed on a regional
stock exchange, but the document did not mention the fact that the company would
soon list on BSE. Many investors tendered their shares in the offer, since they
did not possess the requisite information.