Former Karvy Group Officials Fined ₹1.9 Crore by SEBI for Misappropriation of Client Funds

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The Securities and Exchange Board of India (SEBI), the capital markets regulator, has imposed a penalty of ₹1.9 crore on four former officials of the Karvy Group for violating norms in a case involving the misappropriation of clients’ funds by Karvy Stock Broking Ltd (KSBL). The individuals have been given 45 days to pay the fine, as per the SEBI order. SEBI took action after initiating adjudication proceedings against key personnel of KSBL, who were allegedly involved in the brokerage house’s wrongdoing. The individuals penalized by SEBI are Krishna Hari G, former VP (F&A) of KSBL; Srikrishna Gurazada, former compliance officer of KSBL; Srinivasa Raju, former General Manager of back-office operations; and V Mahesh, former MD of Karvy Stock Broking’s subsidiary KDMSL. The case revolves around KSBL raising substantial funds by pledging clients’ securities and misusing the Power of Attorney granted to it by clients. Moreover, KSBL diverted funds to its group entities, thereby violating various legal provisions.

KSBL had sold excess securities worth ₹485 crore through nine related entities, which were also its clients, until May 2019. Additionally, KSBL transferred excess securities to six out of these nine related entities. The stockbroker had borrowed a total of ₹2,032.67 crore from financial institutions by September 2019, using shares of its clients as collateral. The value of securities pledged by the stockbroker during this period was ₹2,700 crore. In its 80-page order, SEBI found that these four individuals played a significant role in aiding and abetting KSBL in its violations. SEBI Adjudicating Officer Prasanta Mahapatra stated that the actions of these individuals resulted in significant losses for numerous investors. The funds and securities of KSBL’s clients have still not been settled, intensifying the gravity of the situation.

The penalties imposed by SEBI on the individuals are ₹1 crore on Krishna Hari G, ₹40 lakh on Srinivasa Raju, ₹30 lakh on Srikrishna Gurazada, and ₹20 lakh on V Mahesh. In a previous order, SEBI barred KSBL and its promoter Comandur Parthasarathy from the securities market for seven years and imposed a penalty of ₹21 crore on them for misappropriating clients’ funds by misusing the Power of Attorney. The interim order restricting KSBL from taking new brokerage clients was issued by SEBI in November 2019, following a preliminary report by the National Stock Exchange (NSE) regarding non-compliance observed in the pledging or misuse of clients’ securities by KSBL. SEBI confirmed the directions of the interim order in November 2020.

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