Karvy Stock Broking has been prohibited by the markets regulator SEBI from taking up any new assignment or contract or launching a new scheme for six months for committing irregularities in the IPO involving 21 companies during the period 2003 -2005.

The companies whose shares were cornered included IDFC, YES Bank, Suzlon Energy, Sasken Technologies, NTPC, Shoppers Stop and TCS.

The order comes into effect four weeks after Karvy receives the order as directed by the Securities Appellate Tribunal.

SEBI found that Karvy Stock Broking and its group entities — Karvy Consultants Ltd (KCL), Karvy Computershare Pvt Ltd (KCPL), Karvy Securities Ltd (KSL) and Karvy Investor Services Ltd (KISL) — committed irregularities while introducing the bank accounts of the “benamies” / key operator; bidding of IPO applications of the benamies/key operators; and sale of shares, which were cornered by the key operators in the IPOs, through Karvy.

SEBI said the entities of the Karvy Group had their presence in almost all spheres of activity in the IPOs. Bank savings accounts were introduced by Karvy group entities pursuant to an arrangement with banks Bharat Overseas Bank and Indian Overseas Bank.

Demat accounts were opened with KCL/KSBL (in its capacity as a depository participant) on the basis of the bank accounts opened with the banks.

Financing in the IPOs was done by KCL (in its capacity as an NBFC).

IPO applications were bid by Karvy which was also a syndicate member. Refunds and allotments were handled by KCPL (the Registrar and Transfer Agent).

Shares were transferred in off-market transactions through KCL/KSBL (in its capacity as a depository participant) and sale of shares through Karvy.

SEBI said “shares meant for subscription in the retail category have been cornered in the IPOs by the key operators which included Karvy’s sub-brokers.”

“The said act was prejudicial to the interests of the investors and the retail applicants in such IPOs. After cornering the shares meant for retail investors, the key operators and perpetrators of this market abuse sold them to make large profits.”

(This article was published on March 16, 2014)
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