SEBI lets Stewart & Mackertich off the hook in DSQ Software case through a consent order

SEBI’s consent orders are seen as a quick escape mechanism for anyone who is caught violating market regulations and the amount paid would depend on the skills of the lawyer who negotiates the settlement

Market regulator the Securities and Exchange Board of India (SEBI) has again let off Stewart & Mackertich Wealth Management, earlier known as SMIFS Securities with a fine of Rs2.5 crore in the DSQ Software case. However, this is not the first time that the market regulator has allowed the company to get off the hook through consent orders.

The latest order on 18th July, issued by Dr KM Abraham and Prashant Saran, both whole-time members of SEBI, says, "The investigation prima facie revealed that SMIFS Securities had executed 47 synchronised transactions on behalf of promoter associated entities of DSQ Software Ltd. Therefore, it was alleged that the applicant created artificial volume in the scrip, thereby violating the provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2005, SEBI (Stock Brokers & Sub-brokers) Regulations, 1992, and the provisions of SEBI SMD circular no SMDRP/POLICY/Cir-32/99 dated September 14, 1999."

Following the investigation, SEBI initiated an inquiry and issued a show-cause notice to SMIFS Securities on 13 September 2006. While the proceedings were in progress, on 4 September 2007, SMIFS Securities submitted a proposal for settlement under terms of a SEBI circular issued on 20 April 2007. However, on 12 March 2009, SEBI rejected the settlement proposal.

SMIFS Securities submitted a revised proposal on 12 October 2010 and showed willingness to pay a fine of Rs2.5 crore. The high powered advisory committee constituted by SEBI considered the consent terms proposed by SMIFS Securities and recommended to accept the settlement on payment of Rs2.5 crore. On 4 July 2011, SMIFS Securities remitted Rs2.5 crore towards settlement, without admitting or denying the charges and SEBI disposed off the pending inquiry proceedings.

SMIFS Securities was allowed to also get away in 2008 with payment of a fine of a mere Rs3 lakh, on charges of dealing with unregistered sub-brokers, failing to segregate clients' funds and securities and failing to maintain a database of its clients.

In 2004, the market regulator twice rejected the applications of Wealth Management Advisory Services (WMAS) for a portfolio manager licence after it found SMIFS Securities, SMIFS Capital Markets and SMIFS Capital Services were associates of WMAS. "As a capital market regulator, SEBI cannot ignore the connections the applicant company has with the persons who indulged in manipulation in the market," TM Nagarajan, a then whole-time member of SEBI, had said.

The same year, SEBI also rejected SMIFS' application for registration as a merchant banker. In an order issued on 6 August 2004, Mr Nagarajan, said, "An intermediary in the securities market plays an important role and hence if the intermediary is not a fit and proper person, it may act to the detriment of the interest of the investors. In view of the pending proceedings against the associates of the applicant, it is felt that grant of certificate of registration to the applicant company to act as a merchant banker may prove to be detrimental to the interest of the investors."

Earlier this year, in what was perhaps the biggest settlement through a consent order, the market regulator barred Anil Ambani, chairman of the Anil Dhirubhai Ambani group (ADAG), and four of its directors from investing in the markets till December 2011. SEBI also asked Anil Dhirubhai Ambani group companies Reliance Infrastructure (RelInfra) and Reliance Natural Resources (RNRL), which were merged with Reliance Power (RelPower), not to invest in the secondary markets-other than mutual funds-till December 2012.

The market regulator settled the matter with these ADAG companies after the Anil Ambani group, RelInfra, RNRL and its directors collectively paid Rs50 crore as the settlement amount. The case involved a probe into certain market "dealings" by the two ADAG companies, RelInfra and RNRL.

According to, a site sponsored and aided by Investor Education and Protection Fund, in the period from 30 October 2001 to 12 August 2011, SEBI has reached a settlement, or passed a consent order for cases involving 538 companies.

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R Balakrishnan

6 years ago

The haste with which SEBI 'settles' cases like DSQ/Himachal, makes one wonder whether there is also a parallel settlement with members/employees of SEBI. It also demonstrates SEBI's inability or ineptitude in being able to successfully prosecute wrong doing. "Compounding " is the worst thing that India has imported from the West. Makes one wonder whether the fight against corruption is worth it, when you keep these kind of doors open for corruption.

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