In a money laundering case related to the fraud carried out through the illegal diversion of clients’ securities by Karvy Stock Broking Ltd worth Rs 2873.82 Crore and pledging of these securities with banks/NBFCs for seeking loans and subsequent loan default, the Directorate of Enforcement (ED) has arrested Comandur Parthasarathy, CMD of Karvy Group, and G Krishna Hari, CFO of Karvy Group.
Based on the FIR that HDFC bank filed with CCS Hyderabad Police under several IPC sections for defrauding HDFC bank, ED opened a money laundering inquiry. Other Banks and a few investors have since filed further FIRs. On 22.9.2021, ED interviewed many Karvy Group personnel, documented their statements, and searched nine different sites. The top management of the Karvy Group planned a complicated web of activities to misappropriate their customers’ stocks and raise loans unlawfully. These loans were subsequently cycled through several connected firms and diverted from their intended use.
Additionally, the shares of customers who owed KSBL no money were moved to the margin/pool Account of KSBL and pledged with the banks/NBFCs. Under the supervision of the CMD and other senior officials, KSBL negligently mishandled the Power of Attorney (POA) that clients granted to the company to enable exchange settlements. The primary conspirators who provided orders to others were Comandur Parthasarathy and G Krishna Hari. According to a fund trail inquiry, the borrowed money was moved to various group firms, most notably to one WoS of KSBL, M/s. Karvy Realty (India) Limited (KRIL), and subsequently to 14 phoney companies that the Karvy Group formed.
The same has been further misdirected by layering, which was carried out through a convoluted network of transactions from many group firms’ accounts without any sound business reason. The monies were routed through several financial consultancies and shut-down NBFCs. Additionally, it was discovered that KSBL pledged shares of its clients’ accounts as collateral for loans from NBFCs totalling Rs 400 crore in the names of 5 such shell firms. This was done after moving these shares into their accounts unlawfully. The unlawfully obtained funds were redirected to privately owned family businesses and used to pay off existing loans owed to affiliated entities as well as for large stock transactions that reportedly resulted in total losses.
Earlier, the ED had frozen Comandur Parthasarathy’s shareholdings, which were valued at almost Rs 700 crore. The ED is looking into the money trail to find over Rs 2,000 crore in criminal earnings.
On January 20, 2022, Comandur Parthasarathy and G Krishna Hari were taken from Central Jail in Bangalore and brought before the PMLA Special Court MSJ Hyderabad pursuant to a production warrant issued by the ED Court. By order dated January 25, 2022, the Hon’ble Court remanded the CMD and CFO of the Karvy Group to 4 days of ED custody beginning on January 27 and lasting until January 30, 2022. More research is being done.
