The Enforcement Directorate (ED) froze shares worth Rs 700 crore of Karvy Stock Broking Limited (KSBL) group on Saturday, September 25. The shares held directly and indirectly by the Chairman and Managing Director of KSBL Comandur Parthasarathy, his sons Rajat Parthasarathy and Adhiraj Parthasarathy, and their entities have been frozen.
The development comes in the wake of search operations on Wednesday at six locations connected to Karvy Stock Broking Limited (KSBL) under the Prevention of Money Laundering Act, (PMLA) 2002. The ED had conducted search operations on various premises of Karvy Group of Companies, connected entities and at the residential premises of C Parthasarathy. During the course of a search, several pieces of evidence in the form of property documents, personal diaries, electronic devices, email dumps, etc. were seized and are being analysed, ED officials stated on Saturday.
ED officials told the media that C Parthasarathy is trying to offload his shares in group companies through private deals and thus, in order to preserve the proceeds of crime till further investigation, the ED has issued a Freezing Order dated September 24, 2021, under PMLA 2002. The estimated value of these shares has been arrived at Rs 700 crore as per the valuation for the year 2019-20, the ED officials stated.
It may be noted that ED had initiated a money-laundering investigation on the basis of 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 Central Crime Station, Hyderabad Police, for defrauding IndusInd Bank to the tune of Rs 137 crore and one more FIR has been registered by the Cyberabad Police, Hyderabad, for defrauding ICICI Bank to the tune of Rs 562.5 crore.
All these loans have now reportedly become NPAs. 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, a statement issued by ED on Saturday said.
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 course of the investigation, it came to light that KSBL did not report the Depository Participatory (DP) account no 11458979, named KARVY STOCK BROKING LTD (BSE) in the filings made from January 2019 to August 2019 with regulators/ exchanges.
Further, KSBL fraudulently transferred shares belonging to its clients to its own 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, IndusInd Bank, Axis Bank, etc). The securities lying in the aforesaid DP account of KSBL actually belonged to the clients who are the legitimate owners of the pledged securities. Therefore, KSBL did not have any legal right to create a pledge on these securities and generate funds, says the ED. The quantum of such loans taken by KSBL from the illegal pledges of shares is to the tune of Rs 2,873 crore.
KSBL credited the funds raised by pledging of client securities to 6 of its own bank accounts ("Stock Broker-own Account") instead of the "Stock Broker-Client Account" and further has not reported these 6 own bank accounts ("Stock Broker-own Account") held with various private banks, to the SEBI.
Prima facie, a net amount of Rs 1,096 crore was transferred by KSBL to its group company i.e. Karvy Realty (India) Ltd (KRIL), from 01-April 2016 to 19-October-2019.
Further, KSBL did large scale trading activities in the name of 9 companies that included Karvy Consultants Limited (KCL), which is a group company of Karvy, and 8 other shell companies, in the guise of doing insurance business.
During the course of the investigation conducted under PMLA, 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 has also come to light that files and emails from the computer servers were deleted which has been recovered by using digital forensic tools. The files were deleted as instructed by C Parthasarathy, says the ED.
The bank statement analysis of these companies revealed that there is a large value rotation of funds between the Karvy Group of Companies and the shell companies' bank accounts. Earlier, the ED had recorded the statement of C Parthasarathy in Chanchalguda Jail.
Investigation into KSBL is still in progress.