4. People Involved in the Scam
(Karvy Group Chairman & MD)
❖G Hari Krishna
5. The Scam
⚫ In November 2020, Karvy Stock Broking Ltd (KSBL), from its
pool account, took hundreds of shares from dormant demat
accounts. Dormant demat accounts are those that have been
inactive for many years.
⚫ With the help of POA, Karvy took the shares and presented it as a
security to the banks such as ICICI bank, HDFC bank, Indusbank
etc. The loan money obtained from the banks did not go to the
dormant accounts but instead invested in Karvy’s real estate
⚫ Karvy clearly violated market regulations. It defaulted 2,300
crores of as many as 95,000 dormant client accounts.
7. Impact of Scam on Company
⚫ The entire issue began after clients of Karvy reached out to
the Prime Minister's Office (PMO) earlier in the year to
complain that the firm defaulted on payments. Later, Sebi
banned Karvy from taking new clients and executing trades
over allegations of misusing client securities.
⚫ Sebi said the unauthorised use of clients' funds creates a
serious doubt over the conduct and integrity of KSBL. 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
8. Regulatory action taken by Government
⚫ The Securities and Exchange Board of India (SEBI) has
fined the National Stock Exchange (NSE) and Bombay
Stock Exchange (BSE) for supposed "laxity" in detecting the
misuse of client securities by Karvy Stock Broking Ltd.
⚫ The markets regulator imposed a fine of Rs 3 crore on BSE
and Rs 2 crore on NSE. The matter pertains to the
Hyderabad-based brokerage unauthorisedly pledging
securities worth Rs 2,300 crore of over Rs 95,000 clients by
transferring them in just one Demat account, said the SEBI.
⚫ Hyderabad city police registered a case against Karvy Stock
Broking Limited (KSBL), its Chairman and Managing Director C
Parthasarathy and promoters, on charges of cheating Axis Bank.
The case registered in May, 2022, came to light on Tuesday.
⚫ In view of these, the bank reported the KSBL account as fraud
and reported it to the police, following which a case was
registered under Sections 406, 409, 420. Parthasarathy was
booked in several cheating cases by the Hyderabad police and
also the Enforcement Directorate. He is currently in judicial
custody in ED cases
⚫ Resultantly, SEBI did not restrict its actions that are against
⚫ Prospect of barring brokers from offering services like
clearing and settlement.
⚫ Instead these services are planned to be shifted to well -
capitalized bank custodians.
Such actions if implemented, will alert individuals and lay down
full proof system to stay alert from any malpractices from