Mumbai: Market regulator SEBI on 22 June suspended the license of domestic brokerage firm Karvy Stock Broking Ltd (KSBL) for three months, while prohibiting it from opening new demat accounts till the end of this year.
Announcing its final order against the brokerage house in a IPO scam unearthed late in 2005, Securities and Exchange Board of India said that KSBL as a depositary participant “is prohibited from opening fresh demat accounts till December 31, 2007.”
“The direction will come into force with immediate effect,” SEBI’s whole time member G Anatharaman said in the order released on 22 June.
The order further said the registration certificate of KSBL, member BSE, NSE and the Hyderabad Stock Exchange, was being suspended for a period of three months.
This penalty would become effective on the expiry of 21 days from the date of the order, it added.
SEBI further added that Karvy Computershare Pvt Ltd was also being prohibited from acting as a registrar to any issue for a period of nine months.
However, as it had already undergone the prohibition for that period after an interim SEBI order on April 27, 2006, there would be no further direction against Karvy Computershare Pvt Ltd, it said.
SEBI said it was fairly established that Karvy DP and the group was very much in the thick of the entire process of abuse of the IPO process and the penalty was imposed on the basis of the available materials on record.
Earlier in 2005, the stock exchanges had submitted preliminary observations on the IPO of Yes Bank to SEBI, which hinted at possible large scale off-market transactions immediately after the date of allotment and prior to the listing on bourses.
SEBI subsequently carried out a preliminary scrutiny and found that many demat accounts in benami/fictitious names were opened by certain entities, who had also cornered IPO shares in benami names.
On noticing irregularities and a widespread abuse, SEBI acted against the responsible entities through an interim order December 15, 2005, where it restrained them from participating in all future IPOs and directed depositories to freeze their demat accounts.
Later in April 2006, SEBI passed another interim order, which said Karvy DP did not appear to be fit to deal in stock market as SEBI registered intermediaries.
About a month later, SEBI issued new directions saying KSBL was directed not to act as a DP, pending enquiry and final orders, except for acting on instructions of existing beneficiary owners.