Orders came from SEBI on IPO scam issue as a measure to stop further misappropriation. It was found out that in the latter half of the year 2005, Karvy Stock broking Ltd or KSBL misappropriated shares, which were to be subscribed under the section of retail buyers.
When this discovery was made, the market regulator, Securities And Exchange Board of India suspended the license of KSBL. The company was ordered not to go ahead with any fresh demat accounts until 31st December 2007. From investigations carried out by SEBI or Securities And Exchange Board of India, the market regulator proved that during the second half of 2005, there was misappropriation of retail quota of IPO(initial public offer) released by Karvy Stock broking Ltd.

The course of action taken by SEBI on IPO scam has been ordered and the market regulator banned Karvy from performing any operations connected with securities.

To this effect, SEBI declared that the company would not be allowed to open new demat accounts until the 31st of December, 2007. As per orders, registration certificates of KSBL or Karvy Stock broking Limited were suspended for a period of three months from the stock exchanges of Hyderabad, Bombay (BSE) as well as the National Stock Exchange(NSE).
There were many intermediaries who were involved in this entire operation. Few are of the opinion that this IPO scam may have resulted either due to “negligence” or “ignorance”. But SEBI contends that when innumerable applications were being sent from the same address, it possibly could not have been either of the two.
Mode of operation:
In the entire process, there were many key players whose contribution took the “retail quota manipulation” to completion. It all started when banks sent letters to the Depository participants for the verification of POI or proof of identity and POA or proof of address prior to opening the demat accounts. These were not verified by the Depository Participants even though SEBI makes it obligatory for verification for maintaining the integrity as well as the safety of the entire system. There were several thousands of individuals in whose name the bank accounts as well as the dematerialized accounts were opened. There were many such individuals who merely allowed their names to be used.

This led to the opening of several demat and bank accounts. The banks have also been blamed for allowing the ill motives of “earning fee incomes” give way to the norms of the market regulator. These findings of SEBI have also been backed by the Reserve Bank.

Reports reveal that during the period of misappropriation(late 2005), many HNWI or high net worth investors had in fact “cornered” the equity shares, which were meant for the retail buyers.

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Last Updated on : 30th July 2013

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