💸What are Mule accounts?

Mule accounts, in the context of IPOs, refer to accounts held by individuals or entities that may be used to manipulate the stock market, especially during the IPO phase. These accounts are typically controlled by parties seeking to exploit the IPO process for unlawful gains.

💸Role of Mule accounts in IPOs:

📌 Artificial Inflation of Demand: By placing numerous orders from different accounts controlled by a single entity, the perception of high demand is created, potentially leading to an overvaluation of the stock.

📌 Securing Allocations: Some IPOs have a limited number of shares available for public investors, and allocations are often made to institutional investors and high-net-worth individuals. Mule accounts may be employed to secure a larger allocation than permitted, creating an uneven playing field for retail investors.

📌 Price Manipulation: This may involve placing large buy orders to drive up the stock price, only to sell at the inflated price, leading to losses for unsuspecting investors.

💸Recent Updates:

The Securities and Exchange Board of India (SEBI) is poised to investigate malpractices in IPOs.

Speaking at the annual convention of the Association of Investment Bankers of India, SEBI chairperson Madhabi Puri Buch disclosed the regulator has found three merchant bankers frequently indulging in inflating subscriptions during share sales, and that action would be taken against them. Buch also said SEBI has data and evidence on mule accounts.

“You apply in a manner that your application gets rejected. So, you put in multiple applications with multiple banks knowing fully well that they will get rejected. So, the whole purpose of applying is to inflate the number. These are the kinds of practices which we are observing,’’ Buch added.

“We are also seeing practices where there is a pattern of which kind of merchant bankers tend to be frequent names occurring in such malpractices. Therefore, in the interest of the investors, we will be required to both review policy as well as (start) enforcement actions,” she said.

Her comments come amid a very active IPO market recently with certain companies witnessing very high subscription numbers and a strong listing.

💸Conclusion:

As IPOs continue to attract widespread attention, it is crucial for regulators to stay vigilant and address the risks associated with Mule accounts. Investors should exercise due diligence and be aware of the risks associated with market manipulation, seeking guidance from financial experts to make informed investment decisions.

While India is running the IPO’s spree and almost all of them are oversubscribed leaving the investors with a point to ponder. Do your complete R&D before you investing any of the IPO to insure you do not fall as a pray to these mule accounts.

Thank You..!