Karvy goes Curvy on Ethics Highway

 

Karvy is a financial services company in India. It is involved in financial services like equity, commodities trading, depository and wealth management services and distribution of other financial products. It has its headquarters in Hyderabad, India.

Karvy is one of the top-15 share brokers in India on the basis on active clients viz 174,245+ right about now.

Stock investors are in a tizzy because of the Karvy scandal. Equity investing in India is difficult enough without worrying about whether the broker is going to take possession of your stocks, sell them off and appropriate the proceeds.

According to the conclusion that a Sebi investigation has come to, that is exactly what Karvy Stock Broking did with several hundred crore rupees worth of shares that belonged to its clients. The shares were transferred from the clients’ depository accounts, sold off and the proceeds transferred to Karvy’s real estate business.

Going by what Sebi has found, it seems to be a particularly brazen and large scale heist, in all likelihood the largest ever malfeasance of this kind in the Indian equity markets. By itself, that’s not remarkable. As time goes by, the average of everything gets closer to the mean, while the extremes get more extreme. Every once in a while, one will get the largest this or that with some regularity.

However, what is truly galling about this scandal is that it is composed of individual actions that the perpetrators had the right to commit. Only when the end-results were detected by the victims did the fog started to clear and that took a long time. The strange thing, which everyone in this industry as well as the regulator seems to have accepted, is that it is impossible, in practice, to get a demat account and invest in equities without signing over an expansive power of attorney to the broker.

The investors are required to sign over the power to sell their shares to the broker. In most cases where short term investors are involved, the broker can sell the clients' shares if required. But the ones who hold their shares for a long time are at a disadvantage. And the brokers know it too, since long time share holders hardly trade and bring in any brokerage to the concerned firms.

Now SEBI has to figure out how to prevent such incidents from taking places in the future.