Arcadia Share & Stock Brokers Was Intentionally Filing Incorrect Information and Data: NSE
Moneylife Digital Team 15 February 2021
Mumbai-based Arcadia Share & Stock Brokers Pvt Ltd, whose trading rights have been withdrawn by the National Stock Exchange (NSE) for failing to adhere to its regulatory provisions, was found reporting incorrect data about clients’ funds, cash and cash equivalent balances, during the weekly enhanced supervision. 
"Based on data collected by the forensic auditor, the amount payable to the clients was about Rs47.51 crore as on 31 December 2020, whereas the clients payable as reported in the cash and cash equivalent balances submission by Arcadia as on the same date were to the tune of around Rs11.17 crore. This clearly establishes that Arcadia has been intentionally filing incorrect information and data with a view to conceal the true position of the availability of clients’ funds and securities," says an order passed by the NSE's member and core settlement guarantee fund committee (MCSGFC). 
The MCSGFC is headed by Mona Bhide and its members include Narasimha Murthy, Vikram Limaye, Ranganayakulu Jagarlamudi and Anuradha Rao. 
During September and October 2020, NSE received an alert about an off-market transfer of securities by Arcadia. In its offsite supervision, NSE found off-market transfer of securities worth Rs5.51 crore to clients’ demat accounts without sufficient quantity of securities available in the client collateral account maintained by Arcadia on behalf of the clients. The Exchange then asked Arcadia for clarification through 16 emails sent between September and December 2020. 
The NSE committee observed that Arcadia did not submit a satisfactory response (on the grounds of COVID-19 pandemic and personal and family problems), despite several follow-ups and reminders from the Exchange and kept seeking extensions for submission of data.
In the meantime, NSE also received an alert from depositories regarding invocation of pledged securities by banks from proprietary demat accounts of Arcadia between October 2020 and December 2020 worth Rs20 crore. 
Arcadia provided limited information to NSE. Officials of NSE visited the brokerage office three times in December and obtained relevant supporting documents.
Based on the data taken from Arcadia’s back-office, NSE observed certain mismatches in the clients’ fund balances between trial and client ledger balances. NSE then decided to conduct forensic audit of Arcadia's books and appointed KPMG for the purpose. 
A preliminary analysis of the data submitted by KPMG revealed that there was a shortfall of clients’ funds of about Rs27 crore against the non-related client payables of around Rs47.51 crore for around 10,000 clients, as on 31 December 2020.
NSE says, "The conduct of Arcadia, as well as the preliminary findings of the forensic audit, clearly indicated an early warning on the potential default prompting the Exchange to trigger actions as envisaged under the SEBI circular dated 1 July 2020, on standard operating procedure (SOP) in the cases of trading member or clearing member leading to default."
The Exchange called Antony Sequeira, founder-promoter as well as designated director of Arcadia, who promised to share the required data and information by 19 January 2021. In its email on 20 January 2021, Arcadia acknowledged the shortfall of clients’ funds of Rs37.92 crore as on 31 December 2020.
NSE again called Mr Sequeira for a meeting and asked Arcadia to provide a detailed plan of action to recoup the shortfall and tentative timelines to settle the client payables. During the meeting, Mr Sequeira assured the NSE that Arcadia would sell off their proprietary shares, currently pledged with banks and utilise the proceeds to settle the client payables within 15 days’ time.  
However, Arcadia could not settle the clients as assured.
On 21 January 2021, KPMG, the forensic auditor, informed NSE that as per their preliminary findings as against the total client securities payable of Rs106.68 crore, the client securities shortfall amount of Arcadia as on 31 December 2020 was about Rs54.29 crore. Next month, the forensic auditor informed NSE that after reconciling the back-office records of Arcadia with the depository accounts maintained by the brokerage, the revised amount of client securities shortfall was Rs24.06 crore.
NSE also found Arcadia was engaged in the activity of borrowing securities from its clients not through the security lending and borrowing mechanism (SLBM) platform of the Exchange. Arcadia has entered into agreements with five clients for borrowing securities in lieu of interest being paid at the rate of 8% on 50% of the value of shares borrowed. 
Based on the information shared by Arcadia and the preliminary analysis of the forensic audit, NSE found that as on 1 February 2021, the brokerage had a shortfall of client's funds of Rs41.89 crore and a shortfall of client's securities worth Rs24.06 crore.
Arcadia claims that it paid Rs10.20 crore to about 360 creditors between 27th January to 2 February 2021 as against the client payable of Rs47.51 crore as of December end. However, the brokerage did not provide any documentary evidence for the payment, NSE noted.
During January, NSE says it further received an alert from depositories about the invocation of Arcadia's pledged securities by banks. Since NSE had earlier observed off-market transfers between clients’ demat accounts and the proprietary demat account of Arcadia, it asked Axis Bank, Union Bank of India, State Bank of Mauritius, and Kotak Bank not to invoke the pledge on the securities from the demat accounts of Arcadia. It also asked these banks not to take any adverse action in relation to the said securities till the time NSE ascertains ownership of the pledged securities.
In its order, the NSE committee noted, "...despite giving sufficient directions and communication as well as opportunity to recoup the shortages, Arcadia has failed to demonstrate recoupment of any significant portion of the identified shortages. The Committee also finds that the action plan which was submitted by Arcadia vide its email dated 25 January 2021 per se remained empty assurances and does not inspire confidence to allow Arcadia to continue to operate its terminals in view of the conduct of Arcadia and its failure to recoup the client shortages."
It says, "Arcadia has failed to submit the requisite information and details or justifiable reasons for off market transfers to its clients and invocation of pledged securities by banks. The non-submission of the said information obstructs carrying on the inspection and offsite analysis which is necessary to verify or ascertain the veracity of the compliance by Arcadia including the financial condition of Arcadia. Accordingly, Arcadia has failed in its obligation as a trading member to facilitate the inspection and offsite supervision by the Exchange."
The MCSGFC then decided to disable trading terminals of Arcadia from 8 February 2021.
Moneylife tried to reach Arcadia via telephone, but none of the calls was answered by anyone from the brokerage. We then sent emails to Arcadia's managing director (MD) Mr Sequeira and director Narendra Brahmbhatta. 
All we received from Mr Sequeira, the designated director of Arcadia, is the order passed by NSE's MCSGFC. On all other questions, he says, "we can discuss in the next week." Since, we all are working from home and a meeting is not possible, we had requested Mr Sequeira to reply on email on the questions we had asked. We will publish his reply here as and when we receive it. 
Arcadia has around 147,000 registered clients, of whom, around 11,600 clients were active as on 31 January 2021.
3 years ago
Now that Arcadia has been declared Defaulters and Their Trading Rights withdrawn , NSE should pay off the clients with amounts less than 25 lakhs(their lopsided regulations state this) , others with bigger Amount if not solved by NSE (with assets confiscated of Arcadia) will most likely have to approach the courts .
3 years ago
Has there been any action against Arcadia owners for default after their NSE trading desk/terminals was suspended in Feb 21? Are they back in business as normal?
Replied to anilkhatri2408 comment 3 years ago
No action as yet even after disablement of the terminals since Feb8th 2021, On 2nd July they have been declared Defaulters and licence withdrawn
3 years ago
Good information.
Jason Carlo
3 years ago
Hi, I had shares with Arcadia, which r showing in CDSL app.
My concern is I have rupees 59,000 in Arcadia account as I sold some shares from my dmat a day before their trading platform gt suspended.
Shares can be transferred but what about my funds which are struck there
3 years ago
Thank you money life for taking efforts to publish these articles. It will definitely open readers eyes. The low interest rate regime is forcing small retail investors in doing things which they would not have done. It is always better to pay commission and go for reputed brokers which are linked to bank than these private players. At least the brokers of banks are not owned by any private individual. Recently I listed to a you tuber talking about smallcases. I was also told that HDFC and other reputed brokers are now trying to sell these product to the customers. I was told that these smallcases can be created by any tom dick and harry and present it saying they are professionals unlike our Index. Appreciate if you could look into this and advise layman investors. When brokering house like HDFC and Zerodha is willing to sell these products, retails investors will not think much. Appreciate your views on this subject.
Free Helpline
Legal Credit