January 27 The Law Enforcement (ED) Directorate on Thursday arrested senior executives of Karvy Stock Broking Limited (KSBL), including Managing Director C Parthasarathy and Group Chief Financial Officer G Krishna Hari in a money laundering case related to fraud committed through the alleged unlawful misappropriation of client securities worth ₹2,873.82 crore and pledging of such securities to banks/NBFCs for seeking loans and subsequent non-payment.
ED initiated a money laundering investigation based on the FIR filed by HDFC bank with CCS Hyderabad Police under various sections of IPC for defrauding HDFC bank. Subsequently, other FIRs were filed by other banks and some investors.
“Obtaining loans fraudulently”
“ED recorded the statement of various employees of the Karvy Group and carried out searches in nine locations on September 9, 2021. ED discovered the complex network of transactions designed by the senior management of the Karvy Group to misuse the titles of their customers and to fraudulently raised loans which were then transferred through several related companies and diverted from the stated purpose,” ED said in a statement.
Shares of clients who owed no funds to KSBL were also transferred to KSBL’s margin/pool account and pledged to banks/NBFC. The power of attorney (POA) given by customers to KSBL to facilitate exchange settlements has been grossly misused by KSBL under the instructions of CMD and senior management, he added. “Parthasarathy and G Krishna Hari were the main conspirators giving instructions to others. The investigation of the funds trails showed that the borrowed funds were transferred to other companies in the group,” ED said. The funds were parked in different entities, including 14 shell companies launched by the Karvy group. The same was hijacked by overlaying a complex web of transactions from multiple group company accounts without any financial justification. Various financial consultants and former NBFCs were used to channel the funds.
“Furthermore, it is found that KSBL benefited from loans from NBFC amounting to ₹400 crore on behalf of five of these front companies by pledging KSBL clients’ shares after illegally transferring those shares to their account. Fraudulently used loans were used to wipe out pending loans from related companies, make massive stock trades that would have turned into complete losses and were diverted to personally owned family businesses,” ED said.
ED previously froze Parthasarathy’s stake worth around ₹700 crore. ED is investigating the money trail to trace the proceeds of crime which are close to around ₹2,000 crore.
Parthasarathy and G Krishna Hari were lodged at Central Jail, Bangalore, and on a production warrant from ED Court, they appeared before the PMLA Special Court MSJ Hyderabad on January 20. The court remanded the CMD and CFO of the Karvy group to four days of emergency care until January 30.
January 27, 2022