InvestorQ : What exactly was the multiple demat scam of 2005?
Arti Chavan made post

What exactly was the multiple demat scam of 2005?

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Swati Naik answered.
3 years ago
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Back in 2004 and 2005, the regulator SEBI had identified a major scam in the capital markets. Here is how it worked. Some sub-brokers were opening multiple demat accounts with fictitious demat accounts with just a photograph and different names. Then these multiple demat accounts were used to put multiple applications in IPOs. Yes Bank IPO was one of the IPOs in 2004 where scores of such multiple applications were identified. Once the multiple accounts were opened, the sub-broker put in multiple applications from various demat accounts to improve the chances of allotment.
The result was that these unscrupulous sub-brokers managed to corner a large chunk of shares in the IPO and the common small investors were denied their right to get an actual allotment of shares. SEBI had penalized two DPs viz. Karvy and Indiabulls in 2006 for permitting a majority of these multiple demat accounts to be opened without adequate check and balances. The SEBI and NSDL also found cases where the multiple demat accounts were opened without appropriate KYC and customer verification. Both the DPs were penalized for encouraging such multiple demats accounts. Subsequently, SEBI also tightened the norms surrounding demat account opening and made the entry norms a lot more stringent.
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