HYDERABAD: The Enforcement Directorate (ED) has provisionally attached properties worth Rs 1,984 crore belonging to Karvy Stock Broking Ltd, its chairman C Parathasarathy and other functionaries of KSBL in connection with the money laundering investigation against them.
The attached assets include 102 landed properties worth Rs 213.69 crore, shareholding of Parathasarathy in KFin Technologies, a sister concern worth Rs 438.70 crore and tangible and intangible assets worth Rs 1,280 crore of other sister concerns — KDMSL, KFSL NBFC and KSBL, all totalling to Rs 1,984 crore.
The ED initiated money-laundering investigation on the basis of FIRs filed by the Central Crime Station of Hyderabad city police on the complaints of lending banks which complained that the Karvy Group had availed large amounts of loans by illegally pledging their clients’ shares worth about Rs 2,800 crore and the said loans have become non-performing assets after the release of the client’s securities as per the orders of NSE & SEBI.
The scam came to light after an NSE inspection in 2019 which revealed that KSBL had not revealed a DP Account and credited the funds raised by pledging of client securities to six of its own bank accounts -- Stock Broker-own Account instead of the “Stock Broker-Client Account.”
The ED collected the audit conducted by NSE and the orders passed by SEBI and ROC against KSBL and the forensic audit reports of M/s BDO India LLP. Further, searches were conducted at nine locations in September, 2021 and later C Parathasarathy and G Hari Krishna, CFO of Karvy Group, were brought on production warrant and produced before ED Court in Hyderabad and arrested in January, 2021. They are presently in judicial custody.
Parathasarathy has been non-cooperative during the investigation and while admitting a few wrongdoings by KSBL, he had shifted the entire blame on the CEO, CFO and other senior functionaries of the group companies, the ED said.
The ED conducted extensive investigation, recorded the statement of officials, directors of related entities and found that KSBL had misused the power of attorney given by its clients. Shares of clients who did not owe any funds to KSBL had been transferred to the 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’.
Funds were diverted to companies like KDMSL, KRIL which was set up for real estate ventures, diverted loan funds were routed via multiple defunct NBFCs to KFSL to clear its bad loans 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.
Very complex web of financial transactions, using several shell entities and NBFCs, has been executed to conceal the source of these funds with a view to project them as untainted funds and 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, the ED said. Further investigation is in progress.