The Securities and Exchange Board of India (Sebi) has taken action against Karvy Stock Broking and its former managing director Comandur Parthasarathy to recover outstanding fines of around Rs 25 crore. The brokerage firm was found to have misused securities and client funds, leading to substantial losses to investors.
The orders were issued after the brokerage and its head failed to pay fines imposed on them through an order issued by Sebi on April 28, 2023.
Since none of them have paid any amount, the regulator said there were sufficient grounds to believe that they might dispose of their securities/instruments in the demand account/accounts, or the mutual fund folios, or the funds held in the bank accounts. If that were to happen, the recovery of the amount owed to them would be delayed or hampered.
On August 7, the regulator issued a notice to Karvy and Parthasarathy to clear the dues within 15 days in a case related to misuse of clients’ securities and funds by the brokerage firm. In a detailed investigation, SEBI found how Karvy had inappropriately pledged clients’ securities to raise loans for its own purposes. This practice violated several regulatory guidelines and posed a significant risk to investors.
As a result of its findings, SEBI imposed heavy penalties on both Karvy Stock Broking and its former CEO, Comandur Parthasarathy. The sanctions were aimed at deterring future malpractices and recovering losses suffered by investors.
To secure payment of fines, SEBI has attached the bank accounts, demat accounts and mutual fund folios of the brokerage firm. This action is aimed at preventing Karvy from disposing of its assets and avoiding payment of the fines imposed.
Key points:
- Penalties imposed: SEBI has imposed penalties totalling Rs 15.34 crore on Karvy Stock Broking and Rs 9.44 crore on Parthasarathy.
- Asset seizure: The regulator has attached the brokerage’s bank accounts, demat accounts and mutual fund folios to recover dues.
- Prior Misconduct: The sanctions stem from a prior investigation into Karvy’s misuse of securities and client funds.
- Deterrent Measure: SEBI’s actions are aimed at deterring future instances of misconduct in capital markets.
What is this case about?
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Misuse of client assets: KArvy Stock Broking was found to have improperly pledged its clients’ securities to obtain loans for its own purposes. -
Regulatory violations: The brokerage’s actions violated several SEBI regulations and guidelines. -
Financial loss: The misuse of client assets resulted in significant financial losses for investors. -
Imposition of sanctions: SEBI imposed substantial penalties on Karvy and Parthasarathy to deter future misconduct.
In April 2023, Sebi cancelled the commercial banking license of Karvy Investor Services for non-compliance with regulations. Sebi found that Karvy Investor Services had no physical infrastructure or employees.
On August 7, 2024, Sebi issued demand notices to Karvy Stock Broking and its former director. The notices included a penalty of Rs 13 crore, interest and recovery cost.
Breakdown of sanctions imposed on Karvy Stock Broking and its former CEO:
Karvy Stock Brokerage:
- Base fine: Rs 13 million
- Interest (April 2023 – August 2024): Rs 2.21 crore
- Interest (September 2024): Rs. 1.3 lakh
- Recovery cost: Rs. 1,000
- Total due: Rs. 15,34,01,000 (Rs. 15.34 crore)
Commander Parthasarathy:
- Base fine: Rs 8 million
- Interest (April 2023 – August 2024): Rs 1.36 crore
- Interest (September 2024): Rs. 8 lakh
- Recovery cost: Rs. 1,000
- Total due: Rs. 9,44,01,000 (Rs. 9.44 crore)
First published: September 13, 2024 | 9:24 am IS
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