SAT asks Sebi to pass fresh order on Karvy in IPO scam case

Setting aside a Sebi ruling against Karvy Stock Broking, the Securities Appellate Tribunal has asked the regulator to pass a fresh order within four months in the matter related to IPO scam that happened during 2003-2005 period.
In March 2014, Sebi had barred Karvy Stock Broking (KSBL) from taking up new assignment or launching new schemes for six months as a stock broker. The regulator had found that the entity played an active role in aiding and abetting key operators in cornering of shares in IPO's of various firms.
On the appeal filed by Karvy Stock Broking, the tribunal has asked Sebi to pass a fresh order in the matter since the market regulator did not permit the brokerage to cross-examine Bharat Overseas Bank's Ahmedabad Branch Manager Devi Dutt in the case.

Setting aside Sebi order, the tribunal said the regulator's action of not providing Karvy Stock Broking opportunity to cross-examine Dutt was in "violation of the principles of natural justice".
"The impugned order of Sebi dated March 14, 2014 is quashed and set aside and the matter is restored to the file of Sebi for passing fresh order on merits after giving an opportunity to the appellant (Karvy Stock Broking) to cross-examine Devi Dutt, if Sebi chooses to rely upon the said statement of Devi Dutt," SAT said in its order on January 21.
"In view of the fact that considerable time has elapsed from the date of the alleged violation, we direct Sebi to pass appropriate order on merits as expeditiously as possible and preferably within a period of four months from today," it added.

In its investigation into 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 allotment of shares under retail category, the same were transferred to demat accounts of the key operators who subsequently transferred the shares in off-market to ultimate beneficiaries who were the financiers in the IPOs.

The probe had prima facie observed that the Karvy Group -- comprising of KSBL, Karvy Consultants Limited, Karvy Computershare Private Limited, Karvy Securities Ltd and Karvy Investor Services Limited -- had allegedly assisted, aided and abetted the key operators in cornering the shares issued in the IPOs.