ED seizes Rs 1,900 crore Karvy assets

HYDERABAD: The Enforcement Directorate (ED) has provisionally attached properties and shareholdings worth Rs 1,984 crore of Karvy Stock Broking Limited (

KSBL

), its chairman

C Parthasarathy

and other accused under the Prevention of Money Laundering Act (

PMLA

).

In order to safeguard the proceeds of crime from alienation, the ED has attached 102 properties worth 213 crore, shareholding of C Parthasarathy in KF in Technologies worth 438 crore and assets worth 1,280 crore of related companies

KDMSL

,

KFSL NBFC

and KSBL.

ED has been probing money laundering charges based on cases booked by Hyderabad Central Crime Station (CCS). Several banks had filed complaints against the Karvy Group alleging that it availed loans by illegally pledging clients’ shares worth 2,800 crore.

The loans turned into non-performing assets (NPAs) and the scam came to light after an inspection in 2019. Karvy had not revealed depository participants (DP) accounts and credited the funds raised by pledging of clients securities to six of its own bank accounts.

After an audit by the National Stock Exchange (NSE), the

Securities and Exchange Board

of India (SEBI) and Registrar of Companies (ROC) issued orders against KSBL and a forensic audit was also conducted. In September 2021, the ED conducted searches at nine locations. Karvy Group CMD C Parthasarathy and CFO G Krishna Hari were arrested under PMLA in January 2022.

“C Parthasarathy has been totally evasive and non-cooperative during the investigation and, while admitting a few wrongdoings by KSBL, has been shifting the entire blame on the CEO, CFO and other senior management. We have recorded the statement of various officials and directors of related entities. KSBL misused the Power of Attorney given by clients to raise loans illegally. Shares of clients who did not owe any funds to KSBL had been transferred to margin/pool account of KSBL and pledged with banks based on misleading declaration of ownership. Share transfers were done from the client’s accounts for which the KSBL’s sales team claimed they had clients’ approval for stock lending through phone or orally, but there are no supporting documentary evidence,” the ED has alleged.

ED found that the loans were diverted from the original purpose by a set of high-ranking functionaries working under the overall control of the CMD from a ‘secretariat section’ which maintained ‘back office control account’.

“A complex web of financial transactions, using several shell entities and NBFCs, have been executed to conceal the source funds to project them as untainted funds. Large amounts of proceeds of crime have been ‘invested’ by infusing in the form of investments, share capital, short-term advances, loans to group companies. This has resulted in enhancement of the value of the subsidiary companies of KSBL. Now, the accused are trying to sell these subsidiary businesses at a profit to yield indirect windfall gains to the main accused,” ED alleged.