Capital market regulator the Securities and Exchange Board of India (SEBI) has directed Karvy Stock Broking Limited not to undertake new primary market assignments for one year. In an order dated 15 June 2015, the regulator said the order effectively bars the Karvy Group company from acting as syndicate member or providing syndication services (procuring IPO applications and bidding in IPOs), directly or indirectly. However, SEBI has allowed the entity to continue with primary market activities that had been undertaken before the order.
Last week, the regulator decided to start a fresh investigation in a 10 year old case, also related to illegal cornering of shares meant for retail investors.
The regulator issued the order in a case related to the IPO scam between 2003 and 2005. It was alleged that Karvy Stock Broking Limited played an active role in aiding and abetting key operators in cornering of shares in the initial public offers of various firms.
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 Karvy Stock Broking Limited from taking up new assignments for six months as a stock broker. SAT’s direction of a fresh 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 the 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 the retail category). These key operators were found to have cornered the shares issued in the IPOs by using these fictitious accounts.
On the allotment of shares under the retail category, the same were transferred to the demat accounts of the key operators who subsequently transferred the shares in off-market deals to ultimate beneficiaries who were the financiers in the IPOs. In its investigation, SEBI had prima facie observed that Karvy Group – comprising KSBL, Karvy Consultants Limited, Karvy Computershare Private Limited, Karvy Securities and Karvy Investor Services Limited – had allegedly assisted, aided and abetted the key operators in cornering the shares issued in the IPOs. However, the regulator’s order applies only on Karvy Stock Broking Limited.