Sri Ganesh Stocks, C Venkatesan and Vijaya Bharathi had acted as unregistered stock broker, sub-broker and also indulged in portfolio management services without obtaining registration from SEBI, according to a SEBI Order
SEBI in its order against Sri Ganesh Stocks and Shares, C Venkatesan and Vijaya Bharathi under section 11(1), 11(4), 11B and 11D of the SEBI Act 1992, directed the following:
i. restrain the three entities from accessing the securities market and further prohibit them from buying and selling;
ii. direct the three entities to cease and desist from undertaking the portfolio management activities in the securities market;
iii. direct the three entities to immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to the portfolio management activities in the securities market;
iv. prohibit the three entities from mobilising funds from its clients or other general investors or offering any PMS-related activities.
The entities had acted as unregistered stock broker, sub-broker and also indulged in portfolio management services without obtaining registration from SEBI.
SEBI had received a report from National Stock Exchange of India Limited (NSE) in respect of Sri Ganesh Stocks and Shares (Ganesh Stocks) alleging that:
(a) In advertisements issued in some newspapers (viz. “Nanganallur Talk”) by Venkatesan Chandran (Venkatesan), he was inviting general public to make investments and get assured monthly returns.
(b) He has claimed himself to be a sub-broker and affiliated to Saravana Stocks P. Ltd.
(Saravana), a Trading Member of NSE to the officials of NSE who had visited his office for enquiry on advertisement.
(c) In these advertisements, Venkatesan has used the trade name “Sri Ganesh Stocks and Shares", and invited the general public to make investments and get assured monthly returns.
(d) Venkatesan is acting as business partner of Sarvana and a business partner agreement has been entered into between them.
(e) Venkatesan informed officials of NSE who had visited his office for enquiry about the
advertisement that there were 2 ways in which the amount can be invested in the stock market:
(i) become a direct client of Saravana; or
(ii) the clients can deposit the money with Ganesh Stocks who in turn will invest the same in the stock market on their behalf.
(f) The investors desirous of opening the account with Ganesh Stocks were required to enter into a private agreement with Venkatesan.
(g) As per the arrangement between Venkatesan and the investors, the return on investments was directly transferred to the bank account of the individual investors and in few cases, it was paid in cash.
(h) Venkatesan has informed that out of Rs4.36 crore collected from his clients with whom he had entered into private agreement, he had invested only around Rs85 lakh through the two trading accounts maintained with Nirmal Bang on behalf of other investors. The remaining fund was used to settle the financial commitment of the investors with whom the assured returns were promised through the private agreement that were entered into with them.
(i) Venkatesan has claimed to have repaid Rs3.71 crore (which includes principal amount and returns) to some of its investors. However, he did not provide any proof for repayment to NSE.
The SEBI Member based on his investigation after receiving the NSE report says, “As such, it is evident that Venkatesan, while dealing in securities have functioned in his capacity as an unregistered sub-broker by dealing with ultimate clients, had entered into separate private agreements with clients for dealing in securities on their behalf without appropriate registration from SEBI. I also find from the contents mentioned in the advertisements issued by Venkatesan as stated in the pre paragraphs and also from the various covenants of the private agreements that were entered into with the investors by Venkatesan that the investors were promised unrealistic and assured monthly returns. The private agreement which Venkatesan had apparently entered into with investors had enabling clauses whereby the investors were assured about the management of their investments and also the fact that they would not interfere with the investment strategies employed by Venkatesan, etc. These ingredients contained in the private agreement are typical of a discretionary portfolio management activity undertaken by Venkatesan on behalf of the investors. I, therefore, prima facie find that Venkatesan has not only functioned in his capacity as an unregistered sub broker in the securities market but have also indulged in unregistered portfolio management activities. The entire act of Venkatesan is, therefore fraudulent, illegal and unauthorised.”
On the activities of Vijaya Bharathi, wife of Venkatesan, the SEBI Order infers, “A perusal of the documents furnished by NSE along with their report indicated that Vijaya Bharathi had been indulging in direct clientele dealing by executing trades through her own account and settling the transactions by receipt and payment of funds, which is not permitted for a licensed authorised person as stated above. The same is amply corroborated from the observations made in the pre-paragraphs regarding deposit of money both in cash and by way of cheque receipts from various investors and deposit of the same into her bank account.”
“Vijaya Bharathi has clearly aided and abetted Venkatesan and have indulged in unauthorised sub broking activities under the guise of a private agreement which Venkatesan had entered into with the gullible investors,” points out the SEBI Member.
Hence, the SEBI Order finds Vijaya Bharathi and Ganesh Stocks to be at the same level in working with investors as Venkatesan himself and says, “I find that the schemes devised/offered and operated by Venkatesan through his connected/related entities, namely, Ganesh Stocks and Vijaya Bharathi were with their complete knowledge and as such they were not only responsible for misleading the clients of Ganesh Stocks and other general investors from the public but also for collecting funds from them and promising unrealistic returns and for other contraventions.”
Hence, the SEBI Order has gone to the extent of restraining the three entities from accessing the securities market.
The SEBI Order concludes by saying, “the directions are without prejudice to the right of SEBI to take any other action that may be initiated against Ganesh Stocks and Shares, C Venkatesan and Vijaya Bharathi in accordance with law.”