Hyderabad: ED arrests Karvy CMD, CFO in money laundering case

Hyderabad: The Enforcement Directorate (ED) on Thursday said that they have arrested C Parthasarathy, Chairman and MD, and G Krishna Hari, CFO, of the Karvy Group in connection with the Rs 2,000 crore security scam. Both, Parthasarathy and G Hari have been remanded to four days ED custody from January 27 to 30 by the Prevention of Money laundering Act (PMLA) Special Court MSJ. In a statement, the central agency said it has arrested Parthasarathy, Krishna Hari under the PMLA, 2002, in a money laundering case connected with the fraud committed through illegal diversion of clients' securities by the Karvy Stock Broking Ltd worth Rs 2,873.82 crore and pledging of these securities with banks/ NBFCs for seeking loans and subsequent loan default.

According to the ED, Parthasarathy and Hari were the main conspirators who gave instructions to others. Fund trail investigation has shown that the borrowed funds were transferred to other group companies, particularly to one WoS of KSBL i.e. Karvy Realty (India) Limited (KRIL) and then to 14 shell companies floated by the Karvy Group. The same have been further diverted by layering done through a complex web of transactions from the several accounts of group companies without any financial rationale. The Power of Attorney (POA) given by clients to KSBL to facilitate exchange settlements was grossly misused by KSBL at the directions of the CMD and senior executives.

Various financial consultants and defunct NBFCs were used to route the funds. Further, it is found that KSBL availed loans from NBFCs to the tune of Rs 400 crore in the name of five such shell companies by pledging shares of clients of KSBL after illegally transferring these shares to their account. The fraudulently availed loans were used to clear pending loans of related companies, do massive stock transactions which have allegedly turned into complete losses and diverted to personally hold family companies.

The ED started money laundering investigation based on the FIR filed by HDFC Bank with CCS Hyderabad Police under various sections of IPC for defrauding HDFC Bank. The probe agency recorded the statement of various employees of the Karvy Group, and conducted searches at nine locations last year in September.

The agency said that after registering a case, it has uncovered the complex web of transactions designed by the senior management of the Karvy Group to misuse the securities of their clients and to raise loans fraudulently which were then rotated via multiple related companies and diverted away from the stated purpose. The shares of clients who did not owe any funds to KSBL were also transferred to the margin/ pool account of KSBL and were pledged with the banks/ NBFCs.

The ED had earlier frozen shareholding of Parthasarathy worth around Rs 700 crore. The agency is investigating the money trail to trace the proceeds of crime which are close to around Rs 2,000 crore.