Sebi slaps stiff penalty, ban on Karvy and its former chief
1 min read . Updated: 28 Apr 2023, 11:21 PM IST
PremiumSebi has also banned Karvy Stock Broking and Parthasarathy from dealing in securities for seven years.
In its final order in the Karvy Broking case, market regulator Securities and Exchange Board of India (Sebi) on Friday imposed a fine of ₹12 crore on the brokerage and a ₹7 crore penalty on its former chairman C. Parthasarathy.
Sebi has also banned Karvy Stock Broking and Parthasarathy from dealing in securities for seven years.
Sebi also asked two former associate companies of Karvy Broking -- Karvy Realty and Karvy Capital -- to return ₹1,442 crore to the clients of Karvy Broking within three months. The order added that if Karvy Realty and Karvy Capital dont return the funds within the specified time, Sebi has asked NSE to take control assets of the companies. It was observed by Sebi that the broker had transferred this money to the subisdiaries between FY17 and FY20.
In its 88-page order, Sebi barred former Karvy directors Bhagwan Das Narang, Jyothi Prasad and Parthasarathy from holding directorship positions in listed companies. Rajiv Ranjan Singh, another director, received a caution from Sebi to exercise care when accepting future board roles. The penalties were levied after the regulator found the accused guilty of violating multiple securities market laws, including Sebi Act, prevention of fraudulent trade practices, and stock broker regulations, among others.
In 2019, the brokerage was found to have diverted client funds worth ₹2,300 crore to related entities. Subsequently, Sebi issued an interim order against Karvy and instructed exchanges and depositories to return the funds and securities to rightful owners. Exchanges also cancelled Karvy’s membership. In 2020, Sebi passed a confirmatory order, followed by a final order on Friday.
“I find the wrongdoing was not a one-time exercise. It was being committed repeatedly on a continuous basis," said SK Mohanty, Sebi’s whole-time member, in the order.
The regulator also observed that not all clients have received their funds and securities back. While majority of the client securities were returned, some of such securities and client money was siphoned off by the former broker before Sebi stepped in. In case of small investors, many of them have been paid from the investor protection fund managed by The National Stock Exchange.
“it is a matter of fact that, more than 3 lakh clients, whose funds and securities were not settled by KSBL in line with the process and timelines prescribed by SEBI in various circulars, have suffered great mental agony due to fear of losing their money," said the Sebi order. “Such mental agony of large number of the clients is still persisting even though more than 3 years have elapsed since passing of Interim Order, as their funds and securities have still not been settled,"