HYDERABAD: The Karvy Group on Monday decided to call an emergency board meeting before submitting its response on allegations of misusing clients’ shares to the markets regulator.
While the company said an internal team was probing the allegations raised by NSE, based on which SEBI barred it from opening new accounts, it ruled out appointing an external body to conduct an independent probe unless the board insists on the same.
Notwithstanding allegations of illegally transferring funds from the broking business, which also happens to be the holding entity, to its realty arm, curiously, the senior management also saw no need for its statutory auditor BSR & Associates to comb through the books.
"Statutory auditors have nothing to do with any of the issues mentioned here. These are operational issues, related to broking operations, of what we have done with securities and things like that, and it doesn’t have anything to do with financial accounting and is not within the scope of statutory auditors. We are reviewing our internal controls, and will ask external agencies to look at it," said C Parthasarathy, chairman, Karvy Group.
He added that the company’s independent directors will have questions and an external agency will be appointed if the board insists. “We’ll talk to the board, and if there’s a necessity we will ask a third-party entity to review what has happened and what can be done to improve systems in future,” he said.
According to Parthasarathy, there are two issues. One is financial accounting, and the other pertains to operational accounting of securities. While he expressed confidence that the financial accounting side won’t throw up any surprises, operational issues such as the alleged sale and transfer of securities were undergoing a forensic audit. “We are also verifying internally before we make a submission to the regulator,” he said.
The nine client accounts in question, which according to NSE’s preliminary probe involve a sum of Rs 2,000 crore (of which Rs 1,000 crore was allegedly and illegally transferred by Karvy Stock Broking to Karvy Realty), belong to retail investors.
The company has reached out to these clients and Parthasarathy was certain the customers won’t press any charges. “These are investors who bought and sold securities and these amounts look pretty large, but if you buy say Rs 2 crore everyday, the amount increases. The issue is we have to distinguish and see what exactly happened, and I’m confident we can answer,” he said.
Stating that the money raised by pledging shares was for working capital, Parthasarathy said even client dues will be honoured this week or the next.