Hyderabad-based Karvy group, which is facing an in-depth probe by the market regulator Sebi and National Securities Depository Ltd into its role as a registrar and depository participant in the fake demat accounts scam, is now blaming its sub-brokers and banks for the mess it finds itself in.Karvy, which has 15,000 sub-brokers who were used for IPO and mutual funds distribution business, says all the DP applications (which were later found fake) were made in different names and had conformed to the know-your-client (KYC) norms. In its reply to Sebi, Karvy said that even the depositories did not raise any objections to multiple demat accounts with same addresses till the IPO scam broke out.In its order in the IDFC initial public offer (IPO) case, Sebi found 45,000 fake demat accounts. Of which, 95 per cent of them were registered with Karvy-DP. Of its 7 lakh depository base, Karvy froze 40,000 depository accounts which had no balance of shares since November last year.In its defence, Karvy told Sebi that a few of its sub-brokers from Ahmedabad and Mumbai were opening accounts with Karvy’s DP division over the last 20 months with higher volumes being opened just prior to any big IPO. The sub-brokers opened separate account on behalf of their clients in NSDL, and in CDSL saying that they wanted to have separate controls for monitoring their clients’ accounts. The sub-brokers added they wanted to service the investments made by their clients.Karvy said as a registrar it failed to reject the applications from multiple addresses as the names of the applicants were different, and all of them possessed separate valid DP and bank accounts. Most of them were applications which were funded against a bank loan and each of the applications were listed separately in the bank’s schedule, Sebi sources told this newspaper.Karvy added that any registrar will not reject any application on account of same address as many applications come with employer’s address, or applications are made under power of attorney where the address of the institution/bank/broker/agent having the power of attorney is given, and where the applicants have taken a loan from a bank or from a NBFC.In its order, Sebi had castigated Karvy’s role saying it opened the accounts by obtaining the documents mechanically and had not taken proper precautions to ascertain the identity or genuineness of the persons and execution of the DP-bank account agreements.For the last fiscal, Karvy earned Rs 29 crore from its registrar division and another Rs 20.2 crore from its DP business. A detailed order from Sebi on Karvy’s fate is awaited with insiders saying a deterrent punishment will be meted out should their ‘‘collusion’’ be proved.
