Mumbai: Investors are rattled by the `2000-crore fraud unearthed at Karvy Stock Broking by the market regulator Sebi which has banned the firm from taking any fresh clients.
The Sebi action in one of the biggest frauds in equity segment in the recent times comes in the wake of an inspection report from NSE. There were also complaints filed by clients of Karvy Stock Broking with the Prime Minister’s Office (PMO) and the Finance Ministry.
According to experts, the full extent of the fraud could be established only after Sebi’s forensic audit that could find out the extent of alleged misuse of client funds.
Sebi has also asked exchanges and depositories to initiate disciplinary proceedings against the brokerage firm.
Sebi said the unauthorised use of clients’ funds creates a serious doubt over the conduct and integrity of KSBL. In its interim order, the market regulator has barred Karvy from taking any more clients in respect of its stock broking business. It has directed depositories to monitor the flow of money from clients’ accounts of Karvy.
In the 12-page order, Sebi member Ananta Barua said Karvy, despite not having any legal rights to create a pledge on these securities and generate funds, the firm did so to the tune of 2,000 crore.
“Even if the client securities were pledged, it should be (used) only for meeting the obligation of the respective clients,” the order said.
The order said an NSE inspection showed Karvy had transferred a net amount 1,096 crore to its group firm Karvy Realty between April 2016 and October 2019.
The order said an NSE inspection showed Karvy had transferred a net amount `1,096 crore to its group firm Karvy Realty between April 2016 and October 2019. The brokerage also sold pledged client shares via off-market transfer as its own in five out of nine client accounts amounting to `228.07 crore in 2019, and transferred stocks worth `27.8 crore from 156 clients, while none of these trades were executed or authorized by the clients. Sebi has directed NSDL and CDSL not to act upon any instruction given by Karvy in pursuance of power of attorney given by its clients....