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India’s capital markets regulator SEBI has imposed a hefty aggregate fine of Rs 1.9 crores on four ex-Karvy officials pertaining to the case of misappropriation of funds by Karvy Stock Broking Ltd (KSBL).
For the unversed, Karvy Stock Broking Limited (KSBL) was a broking firm founded by 5 CAs in 1983 in Hyderabad. Over the years, the company grew into a major financial services firm that provided services in advisory, equity, commodities, depository, and wealth management. The company’s operations grew so large that it had a presence in several countries such as Bahrain, UAE, Malaysia, Philippines, and the USA.
Over the years, KSBL had grown to be a firm that was trusted by several Indians, and millions invested in it. However, the firm got in trouble in November 2020 when the firm defaulted on a major loan of Rs 2,300 crores which it had secured using its clients’ securities!
SEBI had banned brokers from using client shares because. cases of misuse of Power of Attorney (POA) were rising. Irrespective of such circular, KSBL took hundreds of shares from dormant Demat accounts and presented them as collateral for loans to lenders like ICICI Bank, IndusInd Bank, and others. Said loans were not wired to the account holders, as should have happened when exercising POA.
Instead, these funds were diverted to Karvy’s Real Estate business. Over 95,000 accounts were affected due to Karvy’s actions as all their holdings were taken over by the banks in a bid to recover the loans. SEBI, in a bid to protect investors, passed an order to return all securities to the investors as 90% did regain their securities, but the same left the banks without any means to recover their loans.
In mid-2022, the Enforcement Directorate had attached assets worth Rs 110 crores relating to the case. Moreover, less than 3 weeks ago, Karvy and its Promoter C Parthasarathy were banned from the capital markets for 7 years, charged a fine of Rs 21 crores, and ordered to return funds amounting to over Rs 1,400 crores within 3 months.
The former officials penalized by the Securities Exchange Board of India (SEBI) today are Srikrishna Gurazada (former compliance officer of KSBL), Srinivasa Raju (former General Manager-BPO), Krishna Hari G (VP F&A of KSBL), and V Mahesh (MD of KDMSL, a subsidiary of KSBL).
These four individuals have been identified as Key Employees of KSBL when the brokerage firm committed violated regulations and have been penalized for misappropriating client funds, and not segregating client funds and securities among others & have been ordered to pay the fine in 45 days.
- Aman Agarwal.
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