Scam 2019: The Karvy Story in Memes

The National Stock Exchange declared Karvy Stock Broking Limited as a defaulter today for non-compliance with various regulatory provisions & also expelled it from the membership of the exchange

Lets have a look what this scandal is all about

The case pertains to Karvy unauthorisedly transferring securities of clients into one of its own Demat accounts by misusing the PoAs (Power of Attorney) given by its clients.
PoA authorises the broker to debit the shares directly from the client's demat account to settle a trade

Karvy moved clients' pledged shares (against which they receive margin funding) to its own account via off-market deals and transferred a net amount of Rs 1,096 crore to its group company, Karvy Realty Private Limited between April 1, 2016, and October 19, 2019

Appeals filed at the Securities Appellate Tribunal (SAT) further revealed that Karvy pledged securities worth 2300 crore with 3 private banks and a large NBFC as colletaral to raise loan worth600 cr.The funniest part is that the banks did not care where these securities came from

Brokers are able to execute this as they r quite powerful in India.They are not only exchange members but also depository participants(DPs). Exchanges need to send you SMS/email when shares are transferred based on details provided in ur master report. Who prepares the report?DPs

The loans given to Karvy - some of which were extended after the firm illegally kept client securities as collateral - should have triggered red flags in the system. Such instances point to clear wrongdoing by banks and NBFCs too.

Despite precedents of misappropriation of funds by other broking firms,the regulator has been slow to act. It was only last year that Sebi came up with tighter norms for the usage of funds by brokers. But brokers have continued to misuse client funds despite stricter regulations.