About Karvy group
Karvy Group was established in 1983 and the group has around 30,000 customers with 900 offices present in 400 cities and towns all over India.
Karvy stock broking Ltd
Karvy Stock Broking Limited which is the broking arm of Karvy group and provides equity broking service along with other services like wealth management services, portfolio management services, etc
Karvy fraud
1)Karvy misused its client shares and pledged them with banks to get loans.
2)It also sold its client shares and transferred the proceeds to its real estate group company.
3)The total misuse of client securities was to the tune of ₹2,800 crore.
It created a demat account in its own name and used the power of attorney to transfer stocks from clients account to its own demat account. Then Karvy went to financial companies like Bajaj Finance, HDFC bank, etc. and pledged those stocks to secure the loan. Please remember that the stocks did not belong to Karvy. They belonged to its client. But banks and NBFCs had no clue about it. So the banks and NBFCs handed over the cash to Karvy against the stocks as collateral. The four players - HDFC Bank, ICICI Bank, IndusInd Bank and Bajaj Finance, gave loans of Rs 340 crore each based on these securities as collateral.
Magnitude of Karvy scam
Initial estimates showed that KSBL pledged securities of over 95,000 clients illegally and raised over Rs 2,300 crore via loans against shares (LAS) from multiple lenders like HDFC Bank, ICICI Bank, IndusInd Bank, Axis Bank, Bajaj Finance, Aditya Birla Finance.
Action taken by regulatory agencies
On November 22, 2019, Sebi issued an order banning KSBL from broking services and said the firm had transferred Rs 1096 crore to group company Karvy Realty between April 2016 to October 2019. Investor compensation Sebi worked with DPs and stock exchanges to transfer securities of nearly 83,000 out of the over 95,000 scam-hit KSBL clients NSE said it had settled claims worth Rs 2,300 crore to around 2.4 lakh KSBL investors with fund balances of up to Rs 30,000.
