Sebi confirms ban on Karvy Stock Broking for misuse of clients’ securities; passes final order

Markets watchdog Sebi on Tuesday confirmed the ban on Karvy Stock Broking Ltd (KSBL) from taking new clients and directed stock exchanges as well as depositories to take appropriate action against the entity and its directors.

The regulator passed the final order a year after passing an interim order, wherein it had imposed a ban on KSBL for misusing clients’ securities.

KSBL has also been prohibited from alienating any of its assets, except with prior permission of the National Stock Exchange (NSE), till the settlement of claims of investors.

The final order came after the regulator received a forensic audit report from the NSE in the matter. The bourse has already expelled KSBL from its membership and declared the brokerage house as a defaulter.

The directions issued against KSBL in the ex-parte order passed in November 2019 are operating against it till date, Sebi said in the final order.

Confirming the directions issued in the interim order, Sebi said, “Transfer of funds/ securities made by the KSBL to its clients subsequent to Sebi order dated November 22, 2019, would not absolve KSBL or its directors from violations of the provisions of the securities laws, as have been found in the forensic audit report received in the matter”.

KSBL neither filed any reply for revocation of interim order or not to confirm the interim direction nor availed opportunity of hearing, it noted.

In the various letters seeking adjournment, Sebi said, KSBL made submissions that it is transferring securities and funds to its clients.

“Such letters and conduct of KSBL shows that it admits the wrongdoing, as alleged in the ex-parte order and therefore, has been taking the steps to remove the effects of its wrongdoing such as requesting more time so as to return the funds/ securities to its clients whose securities were unauthorisedly pledged by KSBL,” it said.

In addition, the regulator has directed stock exchanges and depositories to initiate appropriate action against KSBL and its directors.

Besides, NSE would invite and deal with the claims of the clients of KSBL, the watchdog said in the order.

NSE informed Sebi that funds and securities worth Rs 2,300 crore, belonging to about 2.35 lakh investors of KSBL, have been settled so far.

In November last year, the watchdog barred KSBL from taking new brokerage clients after it was found that the brokerage firm had allegedly misused clients’ securities to the tune of more than Rs 2,000 crore.

The interim order came after NSE forwarded a preliminary report to Sebi on non-compliances observed with respect to pledging or misuse of clients’ securities by KSBL.

The exchange’s preliminary report was the result of the limited purpose inspection of KSBL conducted by it on August 19, 2019, covering the period from January 1, 2019 onwards.

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