Two years after the market regulator Securities and Exchange Board of India(SEBI) blacklisted Hyderabad-based Karvy Stock Broking Limited for illegally pawning client securities to raise personal funds, the Hyderabad Police on Thursday arrested KSBL chairman and managing director C Parthasarathi for misusing the power of attorney and defrauding IndusInd Bank to the tune of 137 Crores.
He is arrested under various sections of the Indian Penal Code including criminal breach of trust, cheating and conspiracy.
Hyderabad Police Commissioner Anjani Kumar revealed that Parthasarathi and his close associates transferred client securities, without their consent, into the Demat account of Karvy to raise funds from multiple banks and financial entities. These misappropriated funds were then diverted into different groups including Karvy Realty and Karvy Wealth. The same modus operandi was used to defraud at least 5 banks including HDFC, IndusInd and Axis.
Parthasarathi has been booked for swindling client funds to the tune of 720 crores, which was illegally misused to avail credit facilities worth 680 crores from various banks and NBFCs
“Nearly 2 lakh clients have been duped. Many clients claim their data and financial records have been wiped off,” Joint Commissioner of Police(Detective Dept) Avinash Mohanty said. An audit carried out by Ernst and Young uncovered that Parathasarathi allegedly used anti-forensic tools to erase data of clients.
“Further investigations are underway what we have learnt so far is that they used certain tools to fabricate the virtual dashboard of Demat accounts holders to show that their investments were intact. They failed to transfer shares and money to designated Demat and bank accounts,” Mohanty added.
The mega scam came to light in November 2019 when SEBI banned KSBL from all market segments and directed the National Stock Exchange to transfer securities of nearly 90,000 victims from Karvy’s Demat account into their respective accounts. In November 2020, NSE said it had settled claims worth Rs 2,300 crores and compensated a majority of investors.