Stock brokers are a bridge between investors and the market, as buyers trust them to invest their money in a way that delivers optimum returns. But scams pulled off by stock brokers have been harming this bond of trust, and also prompted the securities and exchange board of India to end the transfer of funds to the intermediaries.
It has also canceled the certificate of registration for Karvy Stock Broking, which used its clients money for other purposes, without their consent.
Serious breach of trust
Karvy had been banned from the market a month back, for pledging the securities lying in demat accounts of clients without their knowledge.
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It had also been slapped with a Rs 21 crore penalty for misusing the power of attorney that they had been entrusted with.
While cancelling the registration, the market regulator also told Karvy that it will continue to be liable for tasks to be completed as a stock broker, which includes payment of outstanding fees and other dues.
Diverted funds to other businesses
Years after it had been caught pulling off a demat fraud, Karvy had been expelled by Indian stock exchanges as they identified it as a defaulter.
Not only did Karvy pledge the funds of its clients illegally, it also routed money raised from that towards its real estate arm and Karvy Capital.
The two firms have also been ordered to return more than Rs 1,400 crore that the stock broking firm diverted towards them.
