The Enforcement Directorate (ED) has arrested CMD and CFO of Karvy Group in a money laundering case committed through the illegal diversion of clients' securities by Karvy Stock Broking Ltd worth Rs 2,873.82 crore, the agency said on Thursday.
Comandur Parthasarathy, CMD, and G Krishna Hari, CFO, of Karvy Group are also accused of pledging of securities with banks and Non-Banking Financial Corporations (NBFCs) for seeking loans and subsequent loan default.
Both of them have been arrested under the Prevention of Money laundering Act (PMLA), 2002.
ED initiated a money laundering investigation based on the FIR filed by HDFC bank with Hyderabad Police under various sections of the Indian Penal Code (IPC) for defrauding HDFC bank. Subsequently, more FIRs were filed by other Banks and a few investors.
ED has recorded the statement of various employees of the Karvy Group and conducted searches at nine locations on September 22 last year.
ED said it uncovered the 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 which were then rotated via multiple related companies and diverted away from the stated purpose.
"The shares of clients who did not owe any funds to Karvy Stock Broking Limited (KSBL) were also transferred to the margin and pool Account of KSBL and were pledged with the banks and NBFCs," ED said.
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, said the federal agency.
The agency said that Parthasarathy and Hari were the main conspirators who gave instructions to others.
"Fund trail investigation has shown that the borrowed funds were transferred to other group companies, particularly to one WoS of KSBL like Karvy Realty (India) Limited (KRIL), and then to 14 shell companies floated by Karvy Group," said the ED.
The same has been further diverted by layering done through a complex web of transactions from the several accounts of group companies without any financial rationale, said the agency.
"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 Rs 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."
The fraudulently availed loans were used to clear pending loans of related companies, do massive stock transactions which have allegedly turned into complete losses and diverted to personally held family companies, said the ED, adding it had earlier frozen share-holding of Parthasarathy worth around Rs 700 crore.
ED is investigating the money trail to trace the proceeds of crime which are close to around Rs 2,000 crore.
Parthasarathy and Hari were lodged in Central Jail, Bangalore and on a Production warrant of ED Court, they were produced before the PMLA Special Court MSJ Hyderabad on January 20. The court has remanded the CMD and CFO of the Karvy Group to four days of ED custody from 27 January to January 30.
( With inputs from ANI )
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