The Enforcement Directorate (ED) has alleged that the senior management of the Karvy Group had designed a complex web of transactions to misuse the securities of their clients for raising loans fraudulently. Funds to the tune of ₹2,873.82 crore were diverted by the accused persons.
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The agency has arrested Karvy Group's chairman-cum-managing director Comandur Parthasarathy and chief financial officer G. Krishna Hari on money laundering charge. It is alleged that the clients’ securities were illegally diverted by Karvy Stock Broking Limited (KSBL) and pledged with financial institutions for getting loans.
The ED probe is based on a First Information Report lodged by the HDFC bank with the Hyderabad police. Subsequently, more FIRs were filed by other banks and some investors. The agency has recorded the statements of various employees of the Karvy Group. Searches were also conducted at nine locations in September last year.
According to the agency, the shares of clients who did not owe any funds to the KSBL were also transferred to the company's margin/pool account and were pledged for loans. The power-of-attorney given by clients to the KSBL to facilitate exchange settlements was misused at the instance of its CMD and other senior executives.
As alleged, Mr. Parthasarathy and Mr. Hari were the main conspirators. Fund trail investigation showed that the borrowed funds were transferred to other group companies, particularly to one wholly owned subsidiary of the KSBL i.e. Karvy Realty (India) Limited, and then to 14 shell companies floated by Karvy Group,”.
The funds were then diverted by layering through a complex web of transactions from several accounts of the Group companies without any financial rationale. Various financial consultants and defunct non-banking financial companies (NBFCs) were used to route the money.
The ED alleges that the KSBL took about ₹400 crore in loans from NBFCs in the name of five shell companies. The credit facilities were used to clear the pending loans of related companies and carry out massive stock transactions that allegedly turned into complete losses. A part of the loan amount was also diverted to the personally held family companies.
The agency had earlier frozen share holding of Mr. Parthasarathy worth about ₹700 crore. He along with Mr. Hari was earlier lodged in Bengaluru's Central Jail. The ED has now got their four-day custody from a Hyderabad special court for questioning.
