SEBI has begun a probe into possible use of fake bids for artificially pushing up the subscription levels in numerous IPOs over past few years, with a modus-operandi similar to that in Vaswani Industries case.

After halting Vaswani Industries’ listing earlier this month on suspicion of irregularities in its IPO bidding, the market watchdog last week ordered a detailed probe into the matter, which would be completed by the next month.

However, SEBI has now received complaints of many IPOs in past 2-3 years, alleging that promoters roped in some ’operators’ to inflate the IPO subscription level with fake bids, which they withdrew at a later stage or cashed in on the first day of listing.

Concerned over the possible scale of the alleged manipulation, SEBI has decided to conduct a detailed probe on a number of IPOs and would soon seek relevant data and information about them from stock exchanges, merchant bankers and other entities, sources said.

The probe would focus particularly on those IPOs where bids were withdrawn during the time the offers had remained open or those cases where shares had plummeted sharply on the first day of the listing, they added.

Typically in such cases, the IPO-bound companies’ promoters, or at times merchant bankers with or without the knowledge of the company, approach certain ‘IPO operators’ to put in fake bids in investor categories like retail, HNIs (High Networth Individual) and body-corporates. These fake bids help inflate the overall bid levels and thus attract the innocent investors for the public offer.

If the desired levels of subscription are achieved during the bidding time, the fake bids are withdrawn, while in some cases the shares allotted for these fake bids are sold off within minutes of the listing.

In some cases, means like stop-payment and wrong cheques are also used to withdraw the bids at a later stage.

The funding for these fake bids is provided by company promoters or merchant bankers to the operators, sources said.

According to them, more than promoters, it is merchant bankers and other advisors who are responsible for such kind of manipulations as they first suggest high valuations to push their fees higher and then resort to such practices for the IPOs to sail through.

The fees of bankers and advisors are generally linked to the size of the public offers, which in turn are linked to the valuation of the shares being sold.

Sources said that the practice is similar to circular trading in secondary market, where demand is artificially pushed up through dummy sale and purchase of shares.

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