As per the Hyderabad police, Karvy Stock Broking Chairman and Managing Director C Parthasarathi was arrested on Thursday, 19 August, for cheating and misusing clients' funds, NDTV reported.
IndusInd bank had subsequently filed a complaint alleging that Parthasarathi's firm had defaulted on a Rs 137-crore loan, following which the founder was taken into custody.
Joint Commissioner of Police Avinash Mohanty said, "HDFC Bank has also filed two cases alleging fraud of nearly Rs 350 crore," NDTV quoted.
In addition to allegations of criminal breach of trust and criminal conspiracy, the police also alleged that the Hyderabad-based company was involved in cheating and "gross violation" of the Securities and Exchange Board of India's (SEBI) norms.
In 2019, SEBI had launched an investigation into the several fraud allegations levied onto the firm.
Mohanty said, "It was found that Karvy had raised loans from banks and transferred the funds to its own subsidiary companies to be used as working capital," NDTV reported.
The stock broking firm had borrowed from Kotak Bank, HDFC Bank, ICICI Bank, and IndusInd Bank.
"These loans had been taken over several years, with the company pledging securities as collateral," he added.
The probe launched by the stock and commodities market regulator uncovered that the securities pledged belonged to the clients and not Karvy, contrary to what the banks had assumed initially.
The police then added that as the money raised through the securities was employed as working capital, Karvy started to default.
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