SEBI has banned Karvy Stock Broking Ltd from acquiring new clients for the stock broking business, as it was found to be misusing client securities worth Rs 2,000 crores. This is one of the biggest cases of broker default in recent times, sending shockwaves through the stock broking community and putting crores of investor money at risk. Many investors are asking this question? Is my money safe with the stock broker?
Now, Karvy is one of the top 10 brokerage companies in India with around 2.5 Lakh customers in India. Karvy is alleged to have misused client collateral for its own trades. SEBI has banned Karvy, the Hyderabad based broker, from acting on behalf of existing clients or acquiring new ones, till the pending investigation is complete.
Karvy Stock Broking has claimed that it has not defaulted on Rs 2,000 crore loans and owes just Rs 50 crores to clients. The Karvy case has brought 36 stock brokers under SEBI radar. Karvy is not the lone culprit and this could be the tip of the iceberg. This is a rampant practice among stock brokers who enjoy power of attorney on your and other clients demat accounts. The stock broker with power of attorney is authorized to transfer client securities to the collateral account. SEBI has asked the depositories, NSDL and CDSL not to act on any instruction given by Karvy vis-a-vis power of attorney or PoA given by its clients. SEBI has asked NSDL and CDSL to monitor the movement of shares to and from Karvy client DP accounts. Karvy says just Rs 40 to 50 Crore needs to be repaid and will be done in normal course and doesn’t know where the Rs 2,000 crore figures have come from.
See Also: How your stock broker may cheat you?
SEBI has found that Karvy Stock Broking had fraudulently pledged client shares after shares were transferred from their demat accounts without informing them. Funds were raised against shares and transferred to Karvy Realty Pvt. Ltd.
Karvy Stock Broking simply moved shares from dormant demat accounts. Investor’s especially senior citizens are at risk of this scam. If you don’t buy/sell shares frequently, you could be at risk of this scam.
The broker is expected to pay-out any cash balance lying with him, at least once in 90 days. If the broker fails to inform you of ledger balance or any stock statements, take this as a red flag. The broker must furnish this information on a regular basis.
So don’t just rely on the broker.
The power of attorney or PoA gives the broker the power to transact on your behalf. Now, a limited-purpose PoA allows the stock broker specific transactions like transferring shares which are sold through the broker on NSE and BSE. Off-market transfer of shares is excluded.
General PoA gives the broker the power to act as if he is in full control of the investment. Give general PoA in the name of a particular person and specify a time limit of 6 months to a year. Make PoA with restrictive clauses. This could be PoA for a limited amount, just for purchase of shares excluding off market transactions and prohibiting creation or pledge or lien.
See Also: Are your shares safe with the broker?
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