Top officials of Karvy Stock Broking arrested in money laundering case

Tribune News Service

New Delhi, January 27

The Enforcement Directorate today said it has arrested Karvy Stock Broking Limited (KSBL) CMD C Parthasarathy and Group CFO G Krishna Hari under criminal provisions of the Prevention of Money Laundering Act (PMLA) in connection with its probe into securities scam worth over Rs 2,873 crore.

The agency produced the two arrested accused — already lodged in Central jail, Bengaluru, after being arrested by the state police — before a special PMLA court in Hyderabad on January 20 and on January 25 it remanded them to four days of ED custody from January 27 to 30, the agency said.

The ED case, filed under the criminal provisions of the PMLA, is based on multiple Telangana Police FIRs filed by HDFC Bank, few other banks and investors alleging clients’ securities were illegally diverted by Karvy Stock Broking Ltd and these were later pledged with banks and non-banking financial companies (NBFCs) for loans, which were later “defaulted”.

The ED has earlier recorded the statement of various Karvy Group employees and also conducted searches in this case in September last year.

“The ED has uncovered the complex web of transactions designed by the senior management of the Karvy Group to misuse the securities of their clients and to raise loans fraudulently which were then rotated via multiple related companies and diverted from the stated purpose,” the agency said.

“The shares of clients who did not owe any funds to KSBL were also transferred to the margin/pool account of KSBL and were pledged with the banks/NBFCs,” it further alleged.

The power of attorney (POA) given by clients to KSBL to facilitate exchange settlements was “grossly misused” by KSBL at the directions of the CMD and senior executives, it said, while alleging that CMD Parthasarathy and chief financial officer (CFO) Hari were the “main conspirators” who gave instructions to others.

“Fund trail investigation has shown that the borrowed funds were transferred to other group companies, particularly to one wholly owned subsidiary of KSBL Karvy Realty (India) Limited (KRIL) and then to 14 shell companies floated by Karvy Group,” it said, adding: “They have been further diverted by layering done through complex web of transactions from the several accounts of group companies without any financial rationale.”

Rs2,873-crore securities scam

• Karvy Stock Broking’s CMD and Group CFO have been arrested by the Enforcement Directorate under criminal provisions of the PMLA in connection with its probe into securities scam worth over Rs2,873 crore
• The agency produced the two accused before a special PMLA court in Hyderabad on January 20 and on January 25 it remanded them to four days of ED custody from January 27 to 30

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