Hyderabad: The Enforcement Directorate (ED) has conducted searches at six locations connected to Karvy Stock Broking Limited ( KSBL) under the Prevention of Money Laundering Act (PMLA)- 2002.
After the search operation, the ED has issued a freezing order in respect of shares of Karvy Group held directly and indirectly by the Chairman and Managing Director of KSBL, Comandur Parthasarathy, his sons, Rajat Parthasarathy and Adhiraj Parthasarathy, and their entities to safeguard the proceeds of crime, according to a press release.
The ED has initiated a money-laundering investigation based on FIRs registered by Telangana police on the complaint of HDFC Bank alleging that KSBL had illegally pledged the securities of its clients and taken a loan of Rs 329 crore and diverted the same. Another FIR has been registered by the Central Crime Station (CCS), Hyderabad Police, for defrauding IndusInd Bank to the tune of Rs 137 crore and one more FIR has been registered by Cyberabad and Hyderabad Police, for defrauding ICICI Bank to the tune of Rs 562.5 crore.
The KSBL under the leadership of Parthasarathy had committed gross irregularities and all the illegally taken loans have become NPA.
It is learnt that more FIRs are being registered by other banks and also individual shareholders/ investors. The total loan proceeds taken from multiple banks using the same modus operandi is around Rs 2,873 crore. The NSE and SEBI are also investigating the affairs of KSBL. The ED is conducting an investigation under PMLA against Karvy Group of Companies for their involvement in the offence of money laundering to the tune of Rs 2,873 crore.
During the investigation, it came to light that KSBL did not report the Depository Participatory (DP) account no. 11458979, named Karvy Stock Broking Limited in the filings made from January to August 2019 with regulators/ exchanges. Further, the KSBL fraudulently transferred shares belonging to its clients to its Demat account (which is not disclosed to the exchanges) and pledged the shares held in these accounts with the lenders/banks (HDFC bank, ICICI bank, Induslnd bank, Axis Bank, etc.).
The securities lying in the aforesaid DP account of KSBL actually belonged to the clients who were the legitimate owners of the pledged securities. Therefore, the KSBL did not have any legal right to create a pledge on these securities and generate funds. The quantum of such loans taken by KSBL from illegal pledges of shares is to the tune of Rs 2,873 crore. It credited the funds raised by pledging of client securities to six of its bank accounts (“Stock Broker-own Account”) instead of the “Stock Broker-Client Account’ and further has not reported these six own bank accounts (“Stock Broker-own Account”) held with various private banks, to SEBI.
Prima facie, a net amount of Rs 1,096 crore was transferred by KSBL to its group company – Karvy Realty (India) Ltd. (KRIL), between April 1, 2016, to October 19, 2019. Further, the KSBL did large scale trading activities in the names of nine companies that included Karvy Consultants Limited (KCL), which is a group company of Karvy, and eight other shell companies, in the guise of doing insurance business. During the investigation, it also came to light that several crores of rupees were diverted for acquiring immovable properties through the group company, KRIL, and to other group companies as well.
It also came to light that recently deletion of files and emails from the computer servers by using anti-forensic tools had been done, under the instructions of Parthasarathy. The bank statement analysis of these companies revealed that there is a large value rotation of funds between the Karvy Group Companies and the shell companies’ bank accounts. Earlier, the ED has recorded the statement of Parthasarathy in Chanchalguda Jail. It conducted a search operation on September 22 on various premises of Karvy Group of Companies, connected entities and at the residential premises of Parthasarathy.
During the search, several incriminating pieces of evidence in the form of property documents, personal diaries, electronic devices and email dumps have been seized and are being analyzed. It is reliably learnt that Parthasarathy is trying to off-load his shares in the group companies through private deals and thus, to preserve the proceeds of crime till further investigation, the ED has issued a freezing order dated September 24, 2021, under PMLA 2002, and the estimated value of these share has arrived at Rs 700 crore as per the valuation for the year 2019-20. Further investigation is in progress.
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