On September 2021, The Enforcement Directorate (ED) said it has frozen shares worth Rs. 700 cr.
Raids were carried out against Karvy Stock Broking Limited (KSBL) CMD C Parthasarathy and others as part of a money laundering investigation against them.
Karvy Stock Broking Limited is a brokerage firm.
It has been in business for 36 years. It employs near about 30,000 people and has 9 branches in the country.
Its daily transactions with stock market exceeds 2 lac.
Karvy Stock Brokering used Demat accounts of its clients without permission. They transferred shares from client Demat accounts to their own Pool account.
This was possible throug the Power of Attorneys that Karvy took from their clients during onboarding process.
Then these shares were pledged to various bank and financial institutions as collateral without informing the clients. The money raised through this operation was diverted to Karvy Realties.
Karvy pledged securities of 95,000 clients. The money raised this way was well over Rs. 2300 cr. The entire operation was a Loan Against Share (LAS) operation where clients shares were collateral for loans secured.
Karvy took loans from multiple banks including HDFC Bank, ICICI Bank, IndusInd Bank, Axis Bank, Bajaj Finance, Aditya Birla Finance.
SEBI has ordered Karvy not to board any new clients.
The Central agency SEBI banned Karvy from stock brokering services. It alleges that the firm has transferred Rs. 1096 cr. betweem 2016 – 2019 to Karvy Realty.
The NSE was also asked to initiate a probe into the Karvy case and work closely with the depository participants and stock exchanges to return some of the illegally transferred shares back to investors accounts.
The National Stock Exchange declared Karvy Stock Broking Limited as defaulter for non-compliance and also expelled it from the membership of the exchange.
By December 2019, securities were returned to some 85,000 scam hit investors accounts.
In 2020 January the Union Corporate Affairs Ministry ordered Registrar of Companies (RoC) to investigate wrongdoings at Karvy.
On August 2021, the Karvy group founder and chairman C Parthasarathy was arrested by Hyderabad Police based on a complaint by IndusInd Bank, due to loan default.
It seems that the top management of the firm was responsible as the transfer of client securities in this way was not possible without the help of top management.
On June 20, 2019, markets regulator SEBI came out with a circular that brokers cannot use client securities to raise loans.
SEBI also gave a deadline 30th September to brokers. When Karvy failed to do so, then investor complained to SEBI which then asked NSE to investigate.
Clients should check their NSDL/CSDL account statements frequently – at least once a month and report to SEBI if any complaints are there.
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