SEBI cancels registration of Karvy Stock Broking for misappropriating clients’ funds

PTI, May 31, 2023, 6:07 PM IST

Representative Image (Source: ANI)

Capital markets regulator SEBI on Wednesday cancelled the registration of brokerage firm Karvy Stock Broking Ltd (KSBL) for mis-utilising clients’ funds and securities.

Cancelling the registration, SEBI said that Karvy was involved in transferring of funds from clients’ accounts to own accounts. Such funds were, in turn transferred to the group companies of the brokerage house. Further, it raised funds by pledging clients’ securities.

Going by the order, the overall borrowing of Karvy, which was raising loans from financial institutions by pledging shares of its clients as collateral, was Rs 2,032.67 crore by September 2019 and the value of securities pledge by the stock broker was Rs 2,700 crore during the period.

In addition, the brokerage firm did not settle clients’ funds and securities, failed to furnish details of bank accounts and depository participant accounts and failed to cooperate with the forensic auditor in the proper assessment of the assets and liabilities of the member towards clients, SEBI said in its order.

Noting that Karvy has been declared a defaulter and expelled by BSE and NSE in November 2020, SEBI has cancelled ”the certificate of registration of Karvy Stock Broking Ltd” under the Intermediaries Regulations.

This comes after SEBI last month barred Karvy and its promoter Comandur Parthasarathy from the securities market for seven years and imposed a penalty of Rs 21 crore on them for misappropriating clients’ funds by misusing the Power of Attorney given to it.

In November 2019, the watchdog, through its interim order, barred KSBL from taking new brokerage clients after it was found that the firm had allegedly misused clients’ securities to the tune of over Rs 2,000 crore. The interim order came after NSE forwarded a preliminary report to SEBI on non-compliances observed with respect to pledging or misuse of clients’ securities by Karvy Stock Broking. Finally, the directions issued through the interim order were confirmed by SEBI in November 2020.

The exchange’s preliminary report was the result of the limited purpose inspection of Karvy Stock Broking conducted by it on August 19, 2019, covering the period from January 1, 2019 onwards.