ED arrests Karvy Group CMD, CFO in money laundering case

The Enforcement Directorate has arrested Karvy Group’s CMD Comandur Parthasarathy, and CFO G Krishna Hari in connection with a money laundering case. The case revolves around the fraud committed through illegal diversion of clients’ securities by Karvy Stock Broking Ltd worth Rs 2,873.82 crore. The ED stated that Karvy pledged these securities with banks and NBFCs to seek loans and subsequent loan default. 

The ED stated in a release that it initiated a money laundering investigation against Karvy based on an FIR filed by HDFC Bank with CCS Hyderabad Police on charges of defrauding. Following that many other FIRs were filed by other banks and investors. 

The agency conducted raids at various locations on September 22, 2021 and recorded statements of various employees of the Karvy Group. The ED stated that it uncovered a “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.” 

Shares of clients that did not owe any funds to KSBL were also transferred to the pool account of the firm and were allegedly pledged with banks and NBFCs. The Power of Attorney given by clients to the firm to facilitate exchange settlements was misused at the directions of the CMD and senior executives, the ED alleged. 

The borrowed funds were transferred to other group companies and then to 14 shell companies that were floated by Karvy. A complex web of transactions from the several accounts of group companies without any financial rationale were undertaken to layer up. Various financial consultants and defunct NBFCs were used to reroute 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,” stated the agency. The fraudulently availed loans were used to pare other pending loans of related companies, for massive stock transactions and diverted to personally held family companies. 

Earlier, the agency had frozen shares of Parthasarathy worth Rs 700 crore. 

Comandur Parthasarathy and G Krishna Hari have been lodged in the Bengaluru Central Jail and have now been remanded to four days of ED custody. 

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