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They have been directed to pay the fine within 45 days, according to the order passed by the Securities and Exchange Board of India (SEBI).
The order came after SEBI initiated adjudication proceedings against the key persons of KSBL, who allegedly contributed/colluded with the brokerage house in its wrongdoings.
Those penalised by SEBI are Krishna Hari G, who was VP (F&A) of KSBL; Srikrishna Gurazada, former compliance officer of KSBL; Srinivasa Raju, who was the General Manager- back office operations; and V Mahesh, who was the MD of Karvy Stock Broking’s subsidiary KDMSL.
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KSBL had sold excess securities to the tune of Rs 485 crore through 9 related entities, which were also its clients, till May 2019. Further, KSBL had also transferred excess securities to 6 out of these 9 related entities.
Moreover, the overall borrowing of KSBL, which was raising loans from financial institutions by pledging shares of its clients as collateral, was Rs 2,032.67 crore by September 2019 and the value of securities pledged by the stock broker was Rs 2,700 crore during the period.
In its 80-page order, SEBI found that these four individuals have played a major role in aiding and abetting KSBL in the violations committed by it.
”I note that the noticees (four persons) were acting as key employees of KSBL when the violations were committed, due to which lakhs of investors have suffered. As a matter of fact, even after more than 3 years since the interim order, the funds and securities of clients of KSBL have not been settled, further amplifying the gravity of the situation,” SEBI Adjudicating Officer Prasanta Mahapatra said.
These four persons were penalised for violating various regulatory norms, including non-segregation of clients’ funds and securities, misappropriation of clients’ securities and diversion of proceeds to group companies; and pledging credit clients’ securities with banks/NBFCs.
Accordingly, SEBI has levied a fine of Rs 1 crore on Krishna Hari G, Rs 40 lakh on Raju, Rs 30 lakh on Gurazada, and Rs 20 lakh on Mahesh.
Last month, the regulator, in its final order, had barred KSBL and its promoter Comandur Parthasarathy from the securities market for seven years and imposed a penalty of Rs 21 crore on them for misappropriating clients’ funds by misusing the Power of Attorney given to it.
In November 2019, the watchdog, through its interim order, restrained KSBL from taking new brokerage clients after it was found that the firm had allegedly misused clients’ securities to the tune of over Rs 2,000 crore.
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.
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. Finally, the directions issued through the interim order were confirmed by SEBI in November 2020.