Mule accounts used to inflate IPO subscriptions are under watch, and the stock market regulator is investigating three cases involving potential use of such accounts, Sebi chairperson Madhabi Puri Buch said.
The malpractice refers to promoters and merchant bankers using accounts of persons known to them to subscribe for shares sold in an initial public offering (IPO). Apart from creating an impression of demand, the operators behind these accounts benefit if the shares list at a premium; if they list at a discount, the mule account holder is bailed out.
"In terms of mule accounts... we all know how those work. We are getting enough evidence and data on mule accounts. So, we must do something about it," Buch said at an Association of Investment Bankers of India event in Mumbai. Sebi may review policy and enforce action against merchant bankers whose names frequently figure in such transactions, the Sebi chairperson added.
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