Oops, it has done it again! The Securities and Exchange Board of India (Sebi) has again issued a path-breaking order asking wrongdoers to disgorge Rs 116 crore of ill-gotten gains in the demat scam, which is likely to fizzle out due to implementation problems. Sebi’s ‘interim’ order of April 2006, which first exposed the multiple-application scam, was similarly full of holes and it subsequently let off some entities who were initially indicted or stepped back to follow procedure. Both ‘interim’ orders are tall on intent but short on execution and accuracy. This time, Sebi’s laudable aim is to force disgorgement of unjust enrichment through multiple IPO applications; but those who have been asked to cough up the moolah were not enriched in the first place - justly or otherwise. The regulator wants large intermediaries such as depositories, banks and Depository Participants to pay up first and recover the money from petty scamsters down the line including Roopalben Panchal, Purshottam Budhwani and others. Sebi blithely advises them to file lawsuits to apportion liability among smaller intermediaries. Sebi found irregularities in 21 IPOs and passed orders against 105 entities including 24 key operators, 82 financiers, 14 DPs, two depositories and one registrar. Apportioning liability among all of them will be a complicated mess. Sebi’s disgorgement order against the two Depositories needlessly distracts attention from the need for systemic changes to make them safer and more affordable. It is also unfair to expect them to take on the regulator’s recovery function and get embroiled in lawsuits on that account. Further, it is an open secret that Panchal, Budhwani and others were controlled by a large market intermediary with known expertise in the multiple applications racket; Sebi officials are aware of this, but the second interim suggests that it is abandoning this line of investigation altogether.

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