The Enforcement Directorate on Wednesday said it has attached assets worth Rs 1,984 crore in connection with its money laundering probe against Karvy Stock Broking Ltd (KSBL) CMD C Parthasarathy and others.

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"In order to safeguard the proceeds of crime from alienation, the Enforcement Directorate has attached 102 landed properties worth Rs 213.69 crore, shareholding of C Parthasarathy in KFin Technologies worth Rs 438.70 crore and tangible/intangible assets worth Rs 1,280 crore of KDMSL, KFSL NBFC and KSBL, etc., totalling Rs 1,984 crore," it said in a statement.

The money laundering case was filed on the basis of FIRs filed by the Hyderabad Police on the complaints of lending banks who said the Karvy Group had availed large amounts of loans by illegally pledging their clients' shares worth about Rs 2,800 crore and the loans have become NPA after the release of the clients' securities on the orders of NSE and SEBI.

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"KSBL was one of the leading stock brokers in the country with millions of clients. The scam came to light after a limited purpose inspection of KSBL conducted by NSE in 2019 revealed that KSBL had not revealed a DP (depository participant or demat account) Account and credited the funds raised by pledging of client securities to six of its own bank accounts (Stock Broker-own Account) instead of the Stock Broker-Client Account," the ED said.

The agency obtained the audit report conducted by the National Stock Exchange (NSE) and the orders passed by the Securities and Exchange Board of India (SEBI) and the registrar of companies (ROC) against KSBL and the forensic audit reports of BDO India LLP.

It alleged Parthasarathy has been "totally evasive and non-cooperative" during the investigation and while admitting a few wrong doings by KSBL, has been shifting the entire blame on the CEO, CFO and other senior management personnel.

It arrested Parthasarathy and group CFO G Krishna Hari in January this year as part of the probe. The duo are in judicial custody at present. The agency said it conducted "extensive investigation, recorded the statement of various officials and directors of related entities."

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"KSBL had misused the power of attorney given by its clients and misused the same to illegally raise loans. Shares of clients who did not owe any funds to KSBL had been transferred to the margin/pool account of KSBL and were pledged with the banks by making misleading declaration of ownership."

"Share transfers were done from the clients' accounts for which the KSBL sales team claimed that they had taken clients' approval for stock lending through phone or orally, but there are no supporting documentary evidence," the ED alleged.

Subsequently, the loans were diverted from the stated purpose by a set of high-ranking functionaries working under the overall control of the CMD from a 'secretariat section' which maintained 'back office control account', it said.

"Funds were diverted to related companies like KDMSL, KRIL which were set up for real estate ventures, diverted loan funds were routed via multiple defunct NBFCs to KFSL NBFC to wash its bad debts and large chunks of loan proceeds were pumped into shell insurance companies which did massive speculative share trading with KSBL as the stock broker and ostensibly suffered massive losses," it alleged.

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A "very complex web" of financial transactions, using several shell entities and NBFCs, have been executed to conceal the source of these funds with a view to project them as untainted funds, the ED said.

"Large amounts of proceeds of crime have been invested by infusing in the form of investments/share capital/short term advances/loans to group companies."

"This has resulted in enhancement of the value of the subsidiary companies of KSBL. Now the accused are trying to sell these subsidiary businesses at a profit to yield indirect windfall gains to the main accused," it said.

(Edited by : Jomy Jos Pullokaran)

First Published:Mar 9, 2022 11:51 PM IST