Capital Heed Financial's Proprietor Shailendra Sen Barred from Market for Violating Investment Advisor Rules
Moneylife Digital Team 02 June 2021
Market regulator Securities and Exchange Board of India (SEBI) has banned Indore-based Capital Heed Financial Research's sole proprietor Shailendra Sen from the capital markets for three years for furnishing false information to the regulator in his application for registration as an investment advisor.
 
During the period of debarment, the existing holding of securities, including the holding of units of mutual funds of  Mr Sen, shall remain frozen.
 
In the order, SK Mohanty, whole time member (WTM) of SEBI noted that while seeking registration from the regulator as an investment advisor in his individual capacity, Mr Sen was under a statutory obligation to disclose his prior activities related with securities market, including the unauthorised investor advisory activities undertaken by his partnership firm, in a true and correct sense to the regulator.
 
Despite this, he knowingly made a false declaration in his application form for registration as an investment advisor, stating that he was not engaged in investment advisory services prior to filing his application and thereby he has intentionally furnished false, misleading, and wrong information to SEBI in violation of the clauses 1 and 8 of the code of conduct specified under investment advisor (IA) rules, SEBI says in its order.
 
SEBI further noted that Mr Sen had also failed to disclose the fact of his earlier engagement in the activities of Cash Cow Broking and Advisory Solution (Cash Cow) in the capacity of a partner in the firm, even after the certificate of registration for Capital Heed was granted to him and such failure on the part of him to disclose such information, which was not disclosed at the time of obtaining the registration, has led to violation of the investment advisor (IA) regulations.
 
Pursuant to complaints lodged in the SEBI Complaints Redress System (SCORES) against Cash Cow alleging that the firm has  given investors a commitment of assured returns, SEBI conducted an investigation into the affairs of Cash Cow. 
 
During the investigation, the bank account opening forms (AoFs) and know your client (KYC) documents of Cash Cow revealed that one of the three partners of Cash Cow, i.e., Shailendra Sen was also simultaneously registered with SEBI as an IA under the sole proprietorship named Capital Heed Financial Research. That is when the whole story unravelled.  
 
Further, it was also observed from the website of the Capital Heed that the Mr Sen misrepresented to investors that it can provide portfolio management services (PMS) although it did not hold a certificate of registration from SEBI to do so, thereby violating PMS norms, SEBI’s order said. 
 
In view of the prima facie findings in the interim order that Mr Sen, through his partnership firm Cash Cow, had already indulged in unregistered investment advisory activities, it was observed that he has prima facie knowingly made false statement or declaration in the application form for registration as IA by stating that he was not engaged in any investment advisory services prior to making such application and accordingly did not disclose his association as a partner in Cash Cow. 
 
SEBI noted that “…an entity which is granted registration as an investment advisor is required to act in a manner and comply with all applicable regulatory requirements which are in the best interests of its clients and uphold the integrity of the securities market. As the arena of investment advisory is fundamentally vast and complex, the IA Regulations have prescribed broad checks and balances to keep the interest of the investors protected from any kind of untoward treatment in the hands of unscrupulous investment advisors. The Code of Conduct spells out the general duties of the investment advisor to act honestly and fairly to serve the best interest of the clients in a fiduciary manner and to keep intact the integrity of securities market”. 
 
“Allowing an investment advisor, who had obtained a certificate of registration on the basis of false, misleading or wrong information, to register new clients would not have been in the best interest of new investors and the orderly development of the securities market. Moreover, the instant proceeding is not being conducted either in the exercise of any appellate or power of revision of order but in continuation of the interim order (which has not even been challenged by the noticee)…,” the order said. 
 
Accordingly, SEBI through its order restrained Mr Sen from 'accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner whatsoever, for a period of three years'.
 
Mr Sen has also been directed to resolve the complaints, if any, pending against him in the SEBI Complaints Redress System (SCORES) within a period of 30 days. 
 
Within a period of 3 months from the date of this order, Sen has to furnish a report to SEBI, duly certified by a Chartered Accountant, certifying that all the complaints against Sen have been resolved. 
 
In case of failure to comply with the directions, he will be prohibited from the capital markets for an additional period of two years or for such time all the complaints are resolved, whichever is later, SEBI said.
 
In an ex-parte interim order in November 2019, SEBI had already banned Sen from the capital markets till further orders. Hence, while calculating the time period of ban, SEBI acknowledged that the period of restraint already undergone by Sen through the interim order will be adjusted.
 
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