SEBI banned Karvy Stock Broking for illegal use of consumer funds

Mumbai, Ta. 23 November 2019, Saturday

The Securities and Exchange Board of India (SEBI) has banned Carvi Stock Broking Limited (KSBL) from imposing immediate execution of client defaults of Rs 1 crore. With this restriction, Carwi Stock Broking will no longer be able to acquire new customers and trade deals for existing customers.

An inquiry by the National Stock Exchange (NSE) found that Carvi sold shares of mortgage-pledge customers with its affiliated companies. Sebi has told depositors not to act on any notice by Carvy Stock Broking on the basis of any Powers of Attorney provided to the Broking House to prevent further abuse of client securities in the matter.

Sebi's full-time member Ananta Barua said in its X-part ad interim order on Friday that Sebi had to intervene immediately to prevent further abuses of consumer securities. Sebi has asked depositors to monitor the transfer of securities to accounts and deposits of customers of Carvy Stock Broking. So as to ensure that the functioning of the customers is not affected.

The National Stock Exchange said Carvy Stock Broking was abusing the power of attorney provided by its clients. Carvi has sold consumer securities in the market through its controlling units and used the funds for its own purposes. The SEBI has ordered that Karvi Stock Broking Limited (BSE), DP Account 2 not be disclosed in details submitted by the KSBL to the NSE during this period from January 1 to August 8 to hide its illegal activities.

This account came to mind in the investigation by NSE, the NSE report found that a number of transactions took place in DP account No.1 Carvi Stock Broking Limited (BSE), through which the securities of the customers were exchanged. Securities were transferred to this account by the abuse of Powers of Attorney, Sebi said. In addition, the Director said that the securities transferred to this DP account were actually customers.

So KSBL does not have the right to foreclose these securities in any way. Even if the customer wishes to mortgage the securities, they can be mortgaged enough to fulfill their obligations to the respective clients, which is not seen in this case. In the wake of the suspicion of Karvi's role, Sebi said that the securities of the customers were illegally abused by Karvi Stock Broking for its own use and not by deliberately disclosing DP Account No.1 Karvi Stock Broking Limited (BSE) exchanges. Raise serious doubt on the integrity of Stock Broking Limited Sebi says she is.

Sebi has, for the first time, found that Carvi Stock Broking has transferred a net amount of Rs 1 crore to its group company, Carvi Realty. Apart from this, Carvi Stock Broking had sold an additional Rs 1 crore worth of securities to their respective customers. Carvi transferred an additional Rs 1 crore of securities to six of these 6 related clients. The latter variance showed that four of the nine clients worth Rs 1.5 crore were mortgaged on behalf of their clients.