Enforcement Directorate today arrested Karvy Group CMD Comandur Parthasarathy, and CFO G Krishna Hari, under Prevention of Money laundering Act (PMLA), 2002 in a matter involving illegal diversion and pledging of the clients' securities by the Karvy Stock Broking Ltd.
"The money laundering case is connected with fraud committed through illegal diversion of clients' securities by Karvy Stock Broking Ltd worth ₹2,873.82 crore and pledging of these securities with banks/ non banking financial companies (NBFCs) for seeking loans and subsequent loan default," ED said today.
ED began the money laundering investigation following an FIR filed by HDFC Bank with CCS Hyderabad Police under various sections of IPC for defrauding HDFC Bank. After the HDFC FIR, additional FIRs were filed by other banks and investors. "ED recorded the statement of various employees of the Karvy Group, and conducted searches at nine locations on September 22 last year," ED said.
According to the agency, a "complex web of transactions", designed by the senior management of the Karvy Group to misuse the securities of their clients and to raise loans fraudulently has been unearthed in the investigations.
"The fraudulent loans were rotated via multiple related companies and diverted away from the stated purpose. The shares of clients who did not owe any funds to KSBL were also transferred to the margin/pool account of KSBL and were pledged with the banks/NBFCs. The Power Of Attorney (POA) given by clients to KSBL to facilitate exchange settlements was grossly misused by KSBL at the directions of the CMD and senior executives," ED said.
Comandur Parthasarathy and G Krishna Hari were the main conspirators who gave instructions to others, the agency added.
Fund trail investigation has shown that the borrowed funds were transferred to other group companies, particularly to M/s. Karvy Realty (India) Limited (KRIL) – a wholly owned subsidiary of KSBL. In addition to KRIL, the funds were also transferred to 14 shell companies floated by Karvy Group. "The same have been further diverted by layering done through complex web of transactions from the several accounts of group companies without any financial rationale," ED added.
"Various financial consultants and defunct NBFCs were used to route the funds. Further, it is found that KSBL availed loans from NBFCs to the tune of ₹400 crore in the name of five such shell companies by pledging shares of clients of KSBL after illegally transferring these shares to their account," it said.
The loans availed by fraudulent pledging of the client shares were used to clear pending loans of related companies. Additionally, according to the investigative agency, the funds were also used for massive stock transactions, which have allegedly turned into complete losses and diverted to personally held family companies.
Share holding of the Comandur Parthasarathy worth around ₹700 Crore has been frozen by the directorate. “ED is investigating the money trail to trace the proceeds of crime which are close to around ₹2000 crore,” it said.
PMLA Special court has remanded the CMD and CFO of the Karvy Group to four days of ED custody from January 27 to January 30. Investigation in to the matter is going on.