NEW DELHI: The Enforcement Directorate (ED) said on Wednesday it has attached immovable and movable properties in the form of lands, buildings and shareholdings worth Rs 1984 crore belonging to Karvy Stock Broking and its chairman C Parathasarathy and others in a money laundering case.
ED initiated a money-laundering investigation on the basis of FIRs filed by the CCS Police Station, Hyderabad Police, on the complaints of lending Banks who complained that the Karvy Group had availed large amounts of loans by illegally pledging their clients' shares worth about Rs 2800 crore and the said loans have become NPA after the release of the client's securities as per the orders of the National Stock Exchange and the market regulator Securities and Exchange Board of India (SEBI).
Karvy Stock Broking Limited (KSBL) was one of the leading Stock Brokers in the country with millions of clients.
The scam came to light after a limited purpose inspection of KSBL conducted by NSE in 2019 revealed that KSBL had not revealed a DP Account and credited the funds raised by pledging of client securities to 6 of its own bank accounts ("Stock Broker-own Account") instead of the "Stock Broker-Client Account".
"In order to safeguard the proceeds of crime from alienation, ED has identified and attached 102 number of landed properties worth Rs 213.69 crore, shareholding of C Parathasarathy in M/s KFin Technologies worth Rs 438.70 crore and tangible/intangible assets worth Rs 1280 crore of M/s KDMSL, M/s KFSL NBFC, M/s KSBL, etc totaling to Rs 1984 crore," the ED said in a statement.
"Further investigation is in progress," the ED said.
On September 22, 2021, the ED conducted searches at 9 locations, and subsequently, C Parathasarathy, CMD of Karvy Group, and G Hari Krishna, CFO, were brought on production warrant and produced before ED PMLA Special Court and were arrested under the Prevention of Money Laundering Act (PMLA) on January 20, 2022. They are presently in judicial custody.
"C Parathasarathy has been totally evasive & non-cooperative during the investigation and while admitting a few wrongdoings by KSBL, has been shifting the entire blame on the CEO, CFO & other senior management," ED said in a statement.
According to ED investigation, KSBL had misused the Power of Attorney given by its clients and misused the same to illegally raise loans. Shares of clients who did not owe any funds to KSBL had been transferred to the Margin / Pool Account of KSBL and were pledged with the banks by making misleading declarations of ownership.
Share transfers were done from the client's accounts for which the KSBL's Sales Team claimed that they had taken clients' approval for stock lending through phone or orally, but there is no supporting documentary evidence. Subsequently, the loans were diverted from the stated 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'.
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Funds were diverted to related companies like - KDMSL, KRIL which was set up for real estate ventures, diverted loan funds were routed via multiple defunct NBFCs to KFSL NBFC to wash its bad debts and large chunks of loan proceeds were pumped into Shell Insurance companies which did massive speculative share trading with KSBL as the Stock Broker and ostensibly suffered massive losses.
The very complex web of financial transactions, using several shell entities and NBFCs, have been executed to conceal the source of these funds with a view 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 the 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, the ED said.