The Securities and Exchange Board of India (Sebi) on Friday barred Karvy Stock Broking (KSBL) and its promoter and managing director Comandur Parthasarathy from accessing the securities market for seven years for diverting client funds worth Rs 1,443 crore.
Delivering the final order in the matter, the markets regulator also slapped a penalty of Rs 21 crore for misusing power of attorney (PoA) granted by the clients to raise funds and diverting the money to group entities.
The stock exchanges had suspended the trading terminals of KSBL in December 2019 and it was declared a defaulter for misusing clients’ funds a year later.
The market watchdog has ordered group firms Karvy Realty and Karvy Capital to return the siphoned off funds, amounting to Rs 1,443 crore, within three months. In case of a failure, the National Stock Exchange (NSE) has been directed to take control of the group’s assets for recovery.
Parthasarathy has been further banned for 10 years from holding positions in any listed company or any company intending to raise money from the public. Two other directors of the firm have also been barred from holding positions for two years and fined Rs 5 lakh each.
The markets regulator noted that nearly 300,000 customers of KSBL still await the settlement of their funds and securities even after three years of the interim order being passed.
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Taking a harsh note of the matter, Sebi order observes that if the regulator had allowed the lending financial institutions to recover their loans advanced to KSBL against pledged shares, it would have created acute selling pressure in different scrips, posing a systemic risk to the entire stock market.
The regulator observed that the KSBL matter warranted for a strong action to send a ‘firm message to deter the stock brokers and their management from indulging in such acts of unethical, unfair and fraudulent behaviour’.