J The Enforcement Directorate (ED) on Thursday arrested top 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 connected with the fraud committed through the alleged illegal diversion of clients’ securities worth ₹2,873.82 crore and pledging of these securities with banks/NBFCs for seeking loans and subsequent loan default.

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, more FIRs have been filed by other banks and a few investors.

‘Raising loans fraudulently’

“ED has recorded the statement of various employees of the Karvy Group and conducted searches at nine locations on September 9, 2021. 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 away from the stated purpose,” ED said in a statement. 

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. The power of attorney (POA) given by clients to KSBL to facilitate the exchange settlements was grossly misused by KSBL at the directions of the CMD and senior executives, it added.  “Parthasarathy and G Krishna 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,” ED said The funds were parked in different entities including 14 shell companies floated by Karvy Group. The same has been further diverted by layering done through a complex web of transactions from the several accounts of group companies without any financial rationale. Various financial consultants and defunct NBFCs were used to route the funds.

Shell companies

“Further, it is found that KSBL availed loans from NBFCs to the tune of ₹400 crore in the name of five such shell companies by pledging shares of clients of KSBL after illegally transferring these shares to their account. The fraudulently availed loans were used to clear the pending loans of the related companies, do massive stock transactions which have allegedly turned into complete losses and diverted to personally held family companies,” ED said. 

ED had earlier frozen the shareholding of Parthasarathy 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 in Central Jail, Bangalore, and on a production warrant of ED Court, they were produced before the PMLA Special Court MSJ Hyderabad on January 20. The court has remanded the CMD and CFO of the Karvy Group to four days of ED custody up to January 30. 

Related Topics
comment COMMENT NOW