sebi:WTM/GA/17/IVD/6/07
This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.
Provisions invoked
- s. 19
- s. 12A
- s. 12
- s. 406
Regulations
- Reg. 13(4)
- Reg. 3
- Reg. 6
- Reg. 5(1)
- Reg. 13
- Reg. 199
- Reg. 5
- Reg. 19
- Reg. 20A
- Reg. 42(2)
- Reg. 200
- Reg. 52
Parties
- Karvy Stockbroking Ltd. (Karvy-DP)
- Pratik-DP
- Karvy Consultants Ltd.
- Karvy Computershare Pvt. Ltd. (Karvy RTI)
- Karvy Stock Broking Ltd. (Broker/KSBL)
Holding
On an interim/prima facie basis SEBI restrained the identified entities from participating in future IPOs, froze dematerialised accounts, and barred Karvy-DP and Pratik-DP from opening new demat accounts and from carrying on DP activities pending enquiry save for transfers on request.
Full text
Page 2 of 191 1.0. Background: 1.1.In October 2005, the stock exchanges submitted their preliminary observations on the Initial Public Offering (IPO) of Yes Bank Ltd. (YBL) which hinted at the possibility of large scale off-market transactions immediately following the date of allotment and prior to the listing on the stock exchanges. SEBI therefore carried out a preliminary scrutiny by calling for data from the depositories and the Registrar to the Issue (RTI). SEBI found that, many demat accounts in fictitious/ benami names were opened by certain entities (hereinafter referred to as the “Key Operators”) and these entities had cornered/ acquired the IPO shares, by making applications in fictitious/ benami names with each of the applications being of small value so as to make it eligible for allotment under the retail category. The aforesaid demat accounts are hereinafter referred to as “afferent accounts” for the sake of brevity. The investigation conducted by SEBI further revealed that subsequent to the allotment of IPO shares, the fictitious/benami allottees had transferred the said shares to their principals which were identified by SEBI as key operators / master account holders. The modus operandi as detailed above led to the prima facie view that the thousands of entities in whose names demat accounts and bank accounts had been opened and IPO applications made, were either benami, name lenders or non existent. 1.2.On noticing the irregularities and widespread abuse, SEB
Page 3 of 191 benamis of Roopalben Panchal and 1315 entities being benamis of Sugandh probably without taking adequate steps to ascertain the genuineness of these entities while acting as a facilitator in what appears to be an act of either gross negligence or active collusion ill behoves them as a SEBI registered market participant.”
Page 4 of 191 with the same address. It appears that the management of Karvy-DP, on coming to know of the same in the wake of a query from SEBI in some other case had, as early as November 2005, internally decided to process these multiple dematerialized accounts bearing the same address for closure. The above goes to confirm that Karvy-DP had knowledge about the fictitious nature of such multiple accounts. 11.18. Also, some of the documents collected by CDSL during the course of inspection show that Karvy-DP has obtained letters purported issued by the concerned banks such as Bharat Overseas Bank as proof of identity and proof of address of the person for the purpose of opening dematerialized accounts. It is seen that one branch manager has on the same date signed as authorized signatory of different branches of the bank. This raises a doubt as to the authenticity of the bank documents obtained by Karvy-DP for opening dematerialized accounts. SEBI is making reference to RBI regarding such apparent irregularities in the bank documents submitted to Karvy-DP for the purpose of opening the dematerialized accounts. 11.19. It is also noted that in view of significant irregularities noticed during the course of inspection of Karvy-DP, both NSDL and CDSL have directed Karvy-DP not to open new dematerialized accounts till the issue of verifying the genuineness of multiple dematerialized account-holders having the same address is addressed to the satisfaction of the depositories. 11.2
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Source: SecMarx — sebi:WTM/GA/17/IVD/6/07. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.