The case pertains to the scam that was perpetrated in the stock market during the launch of Initial Public Offers (IPOs) floated by two firms -- Infrastructure Development Finance Corporation (IDFC) and Yes Bank Limited (YBL) in 2005 where shares meant for retail investors were fraudulently cornered by others.
The case was probed by both the Securities and Exchange Board of India (SEBI) and the CBI.
The Enforcement Directorate (ED) had also registered a money laundering case in this regard in 2007 and subsequently it attached Rs 65 lakh FDRs invested in the name of Karvy Consultants Limited. The FDRs, at present, are kept in a bank branch in the Banjara Hills area of Hyderabad.
"... The preliminary and final enquiries conducted by the SEBI, the investigations conducted by the CBI and the ED including statements recorded and submissions made it is prima facie evident that the defendants had committed (Karvy) the scheduled offence and generated proceeds crime," the court of Adjudicating Authority of the Prevention of Money Laundering Act (PMLA) K Raamamoorty said in its latest order while confirming the ED action.
The Authority is a judicial body to decide on strict enforcement action cases.
According to the ED charge sheet, Karvy had control over the whole process of generation of the idea paper for these two IPOs till the final execution of the involving an intricate web of transfers and re-transfers through the key operators in conjunction with thousands of afferent accounts.
Karvy has been held guilty of the crime of money laundering as the ED probe report said that "prima facie it can be said that Karvy-DP was actively in league with opening demat accounts for many of the key operators and also for most of the afferent accounts that served as conduits for the key operators.
"Ms Karvy DP had not verified the genuineness of the identity of the persons, who opened demant accounts except of the master account holder in as much as the persons neither attended office nor existed at the declared addresses," the chargesheet said.
The ED has charged Karvy for using the shares meant for Retail Individual Investor (RII) and also for creation of benami demat accounts.
The agency said Karvy was guilty of contravention of PMLA as the firm "misused" its company identity to open dubious demant accounts "thereby completely failing" to comply with the accounting formalities prescribed by the SEBI.
"Rather, they indulged in fabrication of documents and falsification of records to make its account opening procedure seemingly compliant with the regulatory requirements prescribed by SEBI.
"So, it is clear that Karvy was instrumental in the opening of benami accounts and carried on till the whole process of IPO was completed with the connivance of other intermediaries for getting unfair gains at the cost of retail investors," the probe report said.