Under the Prevention of Money Laundering Act (PMLA), 2002, the Directorate of Enforcement (ED) has provisionally attached immovable and movable properties in the form of lands, buildings, and shareholdings worth Rs 1984 Crore in the money laundering investigation against M/s Karvy Stock Broking Ltd (KSBL), its Chairman Comandur Parathasarathy, and others.
On the basis of FIRs filed by the CCS Police Station, Hyderabad Police, and complaints from lending banks that the Karvy Group had illegally pledged their clients’ shares worth approximately Rs 2800 Crore in order to obtain large loans, the said loans have since become NPA after the client’s securities were released in accordance with orders from the NSE and SEBI, the ED launched a money laundering investigation. With millions of customers, KSBL was one of the top stock brokers in the nation. The fraud was discovered when KSBL failed to disclose a DP Account and credited cash obtained by pledging client assets to six of its bank accounts (“Stock Broker-own Account”) rather than the “Stock Broker-Client Account,” according to a limited-purpose examination of KSBL by NSE in 2019.
The NSE audit, the SEBI and ROC decisions against M/s KSBL, the forensic audit reports from M/s BDO India LLP, and other documents have all been gathered by the ED. C. Parathasarathy, CMD of the Karvy Group, and G. Hari Krishna, CFO, were then taken on a production warrant, produced before an ED PMLA Special Court, and were later detained under the PMLA on 20.1.2022. On 22.09.2021, ED searched nine sites. They are currently under court protection. While acknowledging some misconduct by KSBL, Commandar Parathasarathy has been evasive and uncooperative throughout the inquiry and has been placing the whole blame on the CEO, CFO, and other top executives.
The ED has carried out a thorough investigation and documented the testimony of several officers and Directors of connected organisations. The ED inquiry found that KSBL had abused the Power of Attorney granted by its clients and exploited that Power of Attorney to unlawfully raise loans. Making the false statement of ownership allowed shares of clients who owed KSBL no money to be moved to the Margin / Pool Account and pledged with the banks. The KSBL Sales Team stated that they had obtained clients’ agreement for stock lending over the phone or orally, but there is no supporting formal proof. Share transfers were made from the client’s accounts.
The loans were then used for purposes other than what they were intended for by a group of high-ranking employees operating under the general supervision of the CMD from a “Secretariat Section” that kept a “Back Office Control Account.” Diverted loan funds were routed through numerous defunct NBFCs to KFSL NBFC to wash its bad debts, and significant amounts of loan proceeds were pumped into Shell Insurance companies that engaged in highly speculative share trading with KSBL serving as the stockbroker and ostensibly suffered significant losses.
To hide the source of these monies and present them as clean cash, a very intricate network of financial transactions has been carried out employing several shell corporations and NBFCs.
Large sums of criminal gains have been “invested” by being infused into group firms as loans, short-term advances, shares of capital, investments, and so on. As a result, the value of KSBL’s subsidiary firms has increased. The accused are currently attempting to recoup indirect windfall earnings for the main accused by selling these subsidiary companies at a profit.
102 landed properties worth Rs. 213.69 crores, C Parathasarathy’s shareholding in M/s KFin Technologies worth Rs. 438.70 crores, and tangible/intangible assets worth Rs. 1280 crore of M/s KDMSL, M/s KFSL NBFC, M/s KSBL, etc., totalling Rs. 1984 crore, have been identified and attached by the ED to protect the proceeds of crime from alienation. The probe is being expanded upon.
