This Article is From Jan 29, 2014

Karvy Stock Broking DP involved in IPO irregularities: Sebi

Karvy Stock Broking DP involved in IPO irregularities: Sebi
Mumbai:

Sebi has found that Karvy Stock Broking Depository Participant indulged in irregularities with respect to initial public offerings of certain companies way back in 2005.

Citing that the depository participant "has already undergone such prohibition for 18 months and 26 days", Sebi has decided not to impose any further penalty.

Karvy Stock Broking, in a late evening statement, said there are no further restrictions on the Depository Participant operations of Karvy Stock Broking Ltd, as the company has already undergone the prohibition stipulated under the order.

"Hence there will be no disruption in the normal functioning of the company. Over the last few years, Karvy has beefed up its systems and processes to prevent such situations in future," the firm said.

The Securities and Exchange Board of India (Sebi), in its order today, said the, "acts and conduct of Karvy Stock Broking DP are unfair and fraudulent" within the scope of regulations.

Sebi said the entity is liable to be prohibited from taking up any new assignment for a period of 18 months for its involvement in IPO irregularities.

However, the regulator said that Karvy Stock Broking DP has already undergone such prohibition for 18 months and 26 days.

"In view of the same, there need not be any further penalty," the order said.

Sebi said while Karvy DP had tried to distance itself from the activities of the other Karvy group entities and the key operators in the IPO scam, it was clear that all of them had acted in concert and facilitated cornering of the shares.

"I note that the Karvy group as a whole appeared to have favoured an extremely aggressive approach to business leading to their direct involvement in the IPO manipulation," Sebi Whole Time Member Prashant Saran said in the order.

"Even if, I were to accept the said submission of Karvy Stock Broking, the fact that would remain is that it had turned a blind eye to the unusual situation where names and surnames appear in hundreds of accounts with mathematical regularity and points to much more than merely not exercising proper diligence and prudence," he added.

Pursuant to a preliminary enquiry, Sebi in June 2007 had passed a common order in respect of all Karvy entities, including Karvy Stock Broking DP. In the order, Sebi had barred the depository participant from opening fresh demat accounts.

According to the company's statement, Sebi's final order today follows their investigation into the functioning of various banks, registrars, depository participants and brokers, on some gaps in the Know Your Customer (KYC) process that led to the IPO irregularities.

"The earlier order issued by Sebi was set aside by the Securities Appellate Tribunal and referred back to Sebi, for fresh hearing and issue of separate orders for each entity/business," it said.

Orders from Sebi are awaited for the registrars and the broking business. All the entities have already served penalty, it added.

Sebi had conducted a preliminary examination upon noticing certain irregularities with respect to IPOs of different companies.

These entities were found to have cornered the IPO shares by making fictitious applications in the retail category through various fictitious/benami applicants.

Pursuant to the allotment, the shares were transferred to the demat account of these entities.

Further, it was also revealed that these key operators had transferred shares through off-market deals to ultimate beneficiaries, who were the financiers in the process.

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