Answer By law4u team
The Securities and Exchange Board of India (SEBI) plays a critical role in maintaining the integrity of the securities markets and protecting investors from fraudulent practices, including IPO price manipulation. SEBI has a structured process to handle complaints related to price manipulation in IPOs and takes legal and regulatory actions against those responsible.
Filing a Complaint with SEBI:
Investors who suspect that there has been price manipulation during an IPO can file a complaint with SEBI through its online platform, the SEBI Complaints Redress System (SCORES). SEBI accepts complaints from investors and other stakeholders regarding market manipulation, including IPO price fixing or misleading pricing.
Investigation by SEBI:
Once a complaint is filed, SEBI investigates the matter thoroughly. This includes reviewing the IPO's pricing process, the involvement of underwriters, the company's disclosures, and whether there was any manipulation or fraudulent activity. SEBI also checks for compliance with the relevant provisions of the Securities Contract (Regulation) Act and the SEBI (Issue of Capital and Disclosure Requirements) Regulations.
Identifying Price Manipulation:
Price manipulation in an IPO can occur in various forms, such as artificially inflating the price of the stock to attract more investors or creating an illusion of demand through fake subscriptions. SEBI uses market surveillance tools, data analytics, and forensic audits to detect such manipulative practices.
Enforcement Actions:
If SEBI finds evidence of price manipulation or any violation of securities laws, it takes enforcement actions against the responsible parties. This may include imposing penalties, issuing show-cause notices, suspending trading of the stock, or even banning individuals or entities involved in the manipulation from participating in the securities market.
SEBI can also direct the company to rectify any misleading disclosures or offer compensatory actions to investors, such as buyback offers or refunding the application money.
Legal Consequences:
If manipulation is confirmed, SEBI can take legal action under the relevant provisions of the Indian securities laws. Under the Securities and Exchange Board of India Act, 1992, and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, individuals or entities involved in market manipulation can face severe penalties, including fines, imprisonment, and prohibition from trading in securities.
Investor Compensation:
In cases of significant loss to investors due to price manipulation, SEBI can direct the company or underwriters to offer compensation to investors, which may include refunds or other corrective measures to mitigate the harm caused by the manipulation.
Example:
In 2019, SEBI took action against the promoters and underwriters of an IPO after it was found that there was manipulation in the pricing of the offering. The IPO had been priced higher than its true market value to mislead investors, and fake subscriptions had been created to inflate demand. After a thorough investigation, SEBI imposed fines on the responsible parties, suspended trading in the company’s shares, and ordered them to compensate affected investors.
SEBI’s swift action in investigating and addressing complaints of price manipulation helps maintain market integrity and protect the interests of investors.
