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Sebi declines Karvy's plea to use PoA, cites illegal transfer of client money

New Delhi: Markets regulator Sebi has rejected Karvy Stock Broking's plea to use its clients' power of attorney (PoA) to settle trades done by them and said securities worth Rs 2,300 crore of more than 95,000 clients were illegally transferred by the broker.

After considering the facts and circumstances of the case including enormity of the prima facie violations observed against Karvy, Sebi in an order passed late night Friday said it would not be prudent to allow the use of PoA by Karvy given to it by its clients.

The markets watchdog further said clients of Karvy who seek to sell securities through the broker may do so by using electronic or physical Delivery Instruction Slip (DIS) only.

The order also highlighted that Karvy, in one demat account under its name on the BSE, unauthorisedly transferred securities worth Rs 2,300 crore of more than 95,000 clients, into this account, by misusing the PoA given by its clients. This demat account was never disclosed by the firm in its filing with stock exchanges.

The securities of fully paid clients were also pledged by Karvy Stock Broking Ltd (KSBL) to generate funds for its own/group entities use.

Apart from misutilisation of client funds, KSBL continued to create additional pledges on client securities even after Sebi regulations prohibiting firms from doing so became effective from October 1.

The suspension could impact thousands of clients. The move follows an order by market regulator Securities and Exchange Board of India's (SEBI) against Karvy for misuse of client funds.

Five private banks and an NBFC, have an exposure of Rs 1,415 crore to Karvy and some more in non-fund based guarantees, according to media reports. Karvy has 12 lakh clients of which 3 lakh are active. On average, 20,000 to 25,000 clients transact daily.