Sebi sends demand notices to 3 ex-Karvy officials to pay Rs 1.8 crore

New Delhi: Capital markets regulator Sebi on Wednesday sent demand notices to three former officials of Karvy Group, asking them to pay about Rs 1.8 crore in the case of the misappropriation of clients funds by Karvy Stock Broking Ltd (KSBL).

Demands and Warnings

The regulator has warned them of arrest and attachment of assets as well as bank accounts if they fail to make the payment within 15 days. Those who have been sent notices are Krishna Hari G, who was VP F&A of KSBL; Srikrishna Gurazada, former compliance officer of KSBL and Srinivasa Raju, who was the General Manager of back office operation.

Background

The demand notices came after the officials failed to pay the fine imposed on them by the Securities and Exchange Board of India (Sebi) in May. In three separate notices, Sebi directed Krishna Hari G to pay Rs 1.06 crore and asked Raju and Gurazada to remit Rs 42.41 lakh and Rs 31.81 lakh, respectively. This includes interest and recovery costs, within 15 days.

Consequences of Non-Payment

In the event of non-payment of dues, the market regulator will recover the amount by attaching and selling moveable and immovable property of these officials. Besides, they face attachment of their bank accounts and arrest.

Fines Levied Earlier

Sebi levied a fine of Rs 1 crore on Krishna Hari G, Rs 40 lakh on Raju, and Rs 30 lakh on Gurazada in May. The case relates to KSBL's raising huge funds by pledging clients securities and by misusing the Power of Attorney (PoA) granted to it by its clients. Further, the funds by KSBL were being diverted to its group entities, thereby violating various provisions of law.

KSBL's Misdeeds

KSBL had sold excess securities to the tune of Rs 485 crore through nine related entities, which were also its clients, till May 2019. Further, KSBL had also transferred excess securities to six out of these nine related entities. Moreover, the overall borrowing of KSBL, 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 pledged by the stock broker was Rs 2,700 crore during the period.

The Securities and Exchange Board of India (Sebi) has taken strict action against three former officials of Karvy Group for their involvement in the misappropriation of clients' funds by Karvy Stock Broking Ltd (KSBL). The officials have been asked to pay fines totaling Rs 1.8 crore within 15 days, failing which they face arrest and attachment of assets. This case highlights the importance of financial institutions adhering to regulations and ensuring the protection of clients' funds.