New Delhi, May 8 -- The market regulator's rare order barring First Overseas Capital Ltd (FOCL) from taking on any new initial public offer (IPO) assignments after uncovering alleged fund diversion from an IPO may signal increased scrutiny of merchant bankers to shore up investor trust, according to experts.

The interim order, issued on 6 May by the Securities and Exchange Board of India (Sebi), uncovered a diversion of Rs.19 crore from the proceeds of Synoptics Technologies Ltd.'s July 2023 IPO. It details how FOCL allegedly siphoned funds through fake counterparties, misclassified as expenses, and partially used to buy the company's own shares on listing day, creating an illusion of market demand.

Sebi's order sent a clear message abo...