SEBI Fines Karvy Stock Broking Rs 25 Crore for Fund Misappropriation

In a significant move to enforce regulatory compliance, the Securities and Exchange Board of India (SEBI) has issued a notice to Karvy Stock Broking Ltd. (KSBL) and its Chairman and Managing Director, C Parthasarathy. The notice demands the payment of approximately Rs 25 crore within 15 days in connection with a case involving the misappropriation of clients’ funds. This action comes after KSBL and Parthasarathy failed to settle a previously imposed fine by SEBI.

SEBI’s Regulatory Action

In April 2023, SEBI took stringent action against KSBL and Parthasarathy, barring them from the securities market for seven years. The regulator imposed a penalty of Rs 21 crore on the firm for misappropriating clients’ funds through the misuse of the Power of Attorney granted to the firm. Specifically, SEBI levied a fine of Rs 13 crore on KSBL and Rs 8 crore on Parthasarathy, who is the promoter-cum-managing director.

The fresh notice from SEBI directs KSBL and Parthasarathy to pay Rs 15.2 crore and Rs 9.36 crore, respectively, including interest and recovery costs, within 15 days. Failure to comply with this directive will lead to SEBI recovering the amount by attaching bank accounts and selling the entities’ movable and immovable property. Additionally, Parthasarathy may face arrest and detention in prison if the dues are not settled.

Misappropriation and Regulatory Violations

The case against KSBL centers around a massive asset mobilization drive followed by raising substantial funds from financial institutions using clients’ securities, with a promise to pay interest. These funds were then misappropriated and diverted to KSBL’s connected entities, resulting in the firm defaulting on its obligations to settle securities and funds with its clients as per regulatory instructions.

In its April 2023 order, SEBI found that KSBL had been raising funds by pledging clients’ securities and misusing the Power of Attorney granted by its clients. The diverted funds were channeled to KSBL’s group entities, violating various legal provisions. This extensive misuse of client assets and regulatory breaches prompted SEBI to impose the market ban and financial penalties.

Conclusion: SEBI’s notice to KSBL and Parthasarathy is a decisive step towards enforcing accountability and protecting investor interests in the securities market. By demanding payment of the outstanding penalties and threatening further punitive actions, SEBI underscores its commitment to maintaining market integrity. The ongoing scrutiny and enforcement actions highlight the regulator’s resolve to address misconduct and ensure compliance within the financial sector.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.