After a major scandal hit the stock markets of misuse of clients' funds, the Securities and Exchange Board of India (SEBI) has banned Karvy Stock Broking (KSBL) from taking new client and executing trades.
IANS had first reported the payment defaults occurring in Karvy Stock Broking and its clients filing complaints with the Prime Minister's Office (PMO), the Finance Ministry and SEBI.
SEBI said the unauthorised use of clients' funds creates a serious doubt over the conduct and integrity of KSBL.
This is one of the biggest cases of broker defaults in the equity segment and despite numerous regulations, clients' money and securities were brazenly misused for its own purposes by Karvy Stock Broking.
The defaults are to the tune of Rs 2,000 crore and in an ex-parte order, Sebi has directed that pending forensic audit, KSBL is prohibited from taking new clients with respect to its stock broking activities.
The NSE on Friday forwarded a preliminary report to SEBI on the non-compliances observed with respect to the pledging/misuse of client securities by KSBL. NSE has also stated that a detailed report in the matter will be submitted shortly.
KSBL has sold excess securities (securities not available in DP account) to the tune of Rs 485 crore through nine related clients till May 31, 2019. Further, KSBL has also transferred excess securities to six out of these nine related clients to the tune of Rs 162 crore till May 31, 2019.
On subsequent verification, it was observed that securities worth Rs 257.08 crore, pledged on behalf of four clients out of the aforesaid nine clients, were unpledged between June 1, 2019 and August 22, 2019 and securities worth of Rs 217.85 crore was recovered by KSBL from four out of the nine client accounts.
KSBL has also purchased securities in five out of the nine client accounts amounting to Rs 228.07 crore during the period from June 1, 2019 to September 8, 2019. KSBL had undertaken the recovery/purchase of securities to recoup the securities shortfall.
Prima facie, a net amount of Rs 1,096 crore has been transferred by KSBL to its group company, i.e. Karvy Realty Private Limited, between from April 1, 2016 and October 19, 2019.
Further, KSBL has sold excess securities (securities not available in DP account) to the tune of Rs 485 crore through nine related clients till May 31, 2019.
Further, Karvy had also transferred excess securities to six out of these nine related clients to the tune of Rs 162 crore till May 31, 2019. On subsequent verification, it was observed that securities worth Rs 257.08 crore pledged on behalf of four clients out of the aforesaid nine clients were unpledged between June 1, 2019 and August 22, 2019 and securities worth of Rs 217.85 crore was recovered by KSBL from four out of the nine client accounts.
KSBL has also purchased securities in five out of the nine client accounts amounting to Rs 228.07 crore between June 1, 2019 and September 8, 2019.