Sebi bans Karvy Stock Broking for a year in IPO scam

Sebi bans Karvy Stock Broking for a year in IPO scam

16 June 2015

Deccan Chronicle

Mumbai: Hyderabad-based Karvy Stock Broking Ltd (KSBL) has been barred by the Securities and Exchange Board of India (Sebi) from taking up any new primary market assignments for a period of one year for alleged irregularities committed in 21 initial public offers (IPOs) between 2003 and 2005. The matter relates to a case in which few market participants reportedly used close to 60,000 fictitious demat accounts to corner share allotments meant for retail investors.The scam was unearthed after stock markets complained to Sebi in October 2005 about large scale off-market transactions immediately following the date of allotment and prior to the listing on the stock exchanges. Following this, Sebi ordered NSDL and CDSL to examine all 105 IPOs listed between 2003 and 2005.Of these, the practice of using benami demat account holders to corner retail quota was noticed in 21 IPOs during this period.However, the stock broking firm has been allowed to continue with its primary market activities that have been undertaken prior to the regulator’s order. The market regulator alleged that KSBL as a syndicate member had played an active role in assisting, aiding and abetting the key operators in cornering the shares issued in the IPOs.In March 2014, Sebi prohibited KSBL from taking any new assignments including opening of fresh demat accounts for a period of six months. However, the above order was challenged before the Securities Appellate Tribunal (SAT), which in January 2015 asked Sebi to issue fresh orders on merits within a period of four months.The Sebi investigation found that that many individuals/entities had opened various demat accounts in fictitious/benami names and made large number of applications in the IPOs in the category of retail investors (each of the applications being of small value as to make it eligible for allotment under the retail category). After cornering the shares using these fictitious accounts, the same were transferred in off-market to ultimate beneficiaries who were the financiers in the IPOs.In the show cause notice issued to KSBL in September 2006, Sebi noted that the stock-broker had introduced large number of savings bank accounts to the bank for the purpose of arranging IPO finance from banks, which facilitated the key operators to make multiple applications.“The only logical conclusion is that each one of Karvy group entities had a pre-assigned role and that all had knowledge about each other’s role. Thus, I conclude that the Karvy group entities have not maintained arm’s length distance between its different businesses in the securities market, starting with the DP, financier, Register and Transfer Issuer and ending with the stock broker. Rather, the chain of events and the manner in which they have occurred, demonstrate that all these entities were hand in glove with each other and were supplementing the activities of each other,” the Sebi order noted.

 

Sebi bars Karvy Stock Broking from taking new assignment for one year

16 June 2015

UNI (United News of India)

Mumbai, June 16 — Capital Market watchdog Securities and Exchange Board of India (SEBI) has barred Karvy Stock Broking Ltd (KSBL) from taking up any new assignment for one year in respect of its role in the IPO scam of 2003-2005.

However, Sebi has allowed the entity to continue with primary market activities that have been undertaken before today’s order. It was alleged that the entity played an active role in aiding and abetting key operators in cornering of shares in IPO’s of various firms.

In an order, Sebi directed “KSBL not to undertake new primary market assignment including acting as syndicate member or providing syndication services (procuring IPO applications and bidding in IPOs), directly or indirectly, in IPOs for a period of one year.”The ruling follows a Securities Appellate Tribunal (SAT) direction, issued in January this year, where Sebi was asked to pass a fresh order within four months.

In March 2014, the regulator had barred KSBL from taking up new assignment for six months as a stock broker. SAT’s order came after it was found that the regulator did not permit the brokerage to cross-examine Bharat Overseas Bank’s Ahmedabad Branch Manager Devi Dutt in the case.

In its investigations into IPO scam, Sebi found that many individuals and entities had opened various demat accounts in fictitious/benami names and made large number of applications in the IPOs in the category of retail investors (each of the applications being of small value as to make it eligible for allotment under theretail category).

These key operators were found to have cornered the shares issued in the IPOs by using these fictitious accounts. On allotment of shares under retail category, the same were transferred to demat accountsof the key operators who subsequently transferred the shares in off-market deals to ultimate beneficiaries who were the financiers in the IPOs.

The probe had prima facie observed that the Karvy Group – comprising of KSBL, Karvy Consultants Limited, Karvy Computershare Private Limited, Karvy Securities Ltd and Karvy Investor Services Limited – had allegedly assisted, aided and abetted the key operators in cornering the shares issued in the IPOs.

 

Sebi bars Karvy from taking new primary market work for 1 year

fe Bureau

16 June 2015

Financial Express

Capital markets regulator, Securities and Exchange Board of India (Sebi) on Monday restrained Karvy Stock Broking and seven officials from accepting new primary market mandate, including initial public offerings (IPOs) for one year. The decision extends an earlier ban of six months in connection with Karvy’s involvement in the 2003-05 IPO scam.

However, Sebi clarified that the ban will not hinder the activities already undertaken by the broking firm before Monday’s order, Sebi whole-time member Prashant Saran stated in a 39-page order.

The ruling follows direction by the Securities Appellate Tribunal (SAT) in January 2015 that asked the market regulator to pass a fresh order pertaining to the matter within four months.

In its investigation, Sebi ascertained that Karvy played an active role in alleged irregularities in the transactions of shares in IPOs of 21 companies a decade ago.

Sebi found that many individuals and entities had opened various demat accounts in fictitious names and that Karvy had assisted, aided and abetted key operators in cornering the shares issued in the retail category of the IPOs.

The case involving large-scale irregularities 21 IPOs during 2003-05, Sebi has found that KSBL “failed to maintain high standards of integrity and further indulged in manipulation and malpractices and thereby violated the code of conduct” specified in its Broker Regulations.

Sebi had passed various ex-parte interim orders between December 2005 and April 2006 in this case, wherein directions were issued against various entities including those of Karvy group. Further investigations were conducted thereafter and show-cause notices were issued and a common final order was passed in June 2007.

Three Karvy entities, including KSBL subsequently appealed before the SAT, which asked Sebi in June 2008 to pass three separate orders against three separate orders against them, while giving a four-week time for orders to come into effect. KSBL also sought to settle the case through Sebi’s consent mechanism but the plea was rejected.

During the hearing, KSBL submitted that the alleged irregularities occurred at its Ahmedabad Office and there were no findings in respect of other branches and that all their other branches had been conducting their business in compliance with the rules, regulations laid out and therefore any restraint on the entire operations would not be proper.

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