Income Tax Department Launches Major Raids in Noida Over SME IPO Scandal
In a significant crackdown on financial misconduct, income tax sleuths executed extensive search operations on premises associated with Delhi-based merchant banker Kulbhushan Parashar. The raids, part of a broader investigation into alleged irregularities in small and medium enterprise (SME) initial public offerings (IPOs), targeted multiple locations across three cities, involving over 200 personnel.
Widespread Operations Led by Noida Investigation Wing
The operation was spearheaded by the investigation wing in Noida, under the supervision of the principal director of income tax (investigation) based in Kanpur. Officials confirmed that 20 different sites were covered during the raids, which aimed to uncover evidence related to fraudulent activities in recent SME IPOs that have seen a surge in stock market listings.
Alleged Irregularities and Deception of Retail Investors
According to officials, the department intervened after "serious irregularities" began emerging in SME IPOs, where retail investors were allegedly enticed with promises of high returns. An official stated, "Certain entities converted IPOs into a structured tool for illicit gains," highlighting how the process was manipulated for personal profit.
Preliminary findings indicate violations of regulatory norms and deception targeting retail investors, particularly middle-class individuals who commonly participate in SME offerings. Sources revealed that shares may have been allocated to relatives, associates, and dummy investors, including domestic staff, without genuine financial consideration.
Mechanism of Artificial Demand and Price Inflation
These holdings were then allegedly routed through pre-planned transfers to the actual beneficiaries, creating artificial demand and driving up share prices. This scheme reportedly drew unsuspecting investors into inflated valuations, enabling a select group to amass crores of rupees in illicit gains. Officials emphasized that such practices undermine market integrity and exploit vulnerable participants.
Seizure of Evidence and Ongoing Investigation
During the raids, documents and digital evidence were seized to support the investigation. Officials noted that more names could come under scrutiny as the probe progresses, with details potentially being shared with regulatory bodies like the Securities and Exchange Board of India (SEBI) and other agencies to ensure comprehensive oversight and enforcement.
The crackdown underscores the government's commitment to safeguarding investor interests and maintaining transparency in financial markets, particularly in the wake of increased IPO activity. As the investigation unfolds, further revelations are expected to shed light on the extent of the irregularities and the measures needed to prevent future occurrences.
