Edelweiss Asset Management, CEO and Fund Manager Fined Rs16 Lakh for MF Rule Violation
Moneylife Digital Team 28 October 2024
Securities and Exchange Board of India (SEBI) has imposed a total penalty of Rs16 lakh on Edelweiss Asset Management Ltd (noticee 1), along with its chief executive officer (CEO) Radhika Gupta (noticee 2) and fund manager Trideep Bhattacharya (noticee 3), for violating mutual fund (MF) regulations. 
 
In an order, Amar Navlan, adjudicating officer (AO) of SEBI says, "Edelweiss had failed to ensure that the asset management company took all reasonable steps and exercised due diligence to ensure that the investment of funds pertaining to any scheme was not contrary to the provisions of these regulations and that it failed to ensure that the asset management company shall be responsible for the acts of  commission or omission by its employees or the persons whose  services have been procured by the asset management company."
 
SEBI's investigation revealed that the Edelweiss Focused Equity Fund (EFEF) exceeded the 30-stock investment limit on 88 occasions between November 2022 and February 2023. This breach constituted a clear violation of Regulation 25 of the SEBI (Mutual Funds) Regulations, 1996, as well as several SEBI circulars.
 
The noticees argued that deviations in asset allocation were due to defensive measures aimed at protecting the fund's net asset value (NAV), citing SEBI's frequently asked questions (FAQs) that allow temporary adjustments for such reasons. 
 
SEBI, however, dismissed this defence, clarifying that while adjustments are permitted for equity or debt allocations, the issue at hand was the repeated and regular breach of the 30-stock limit in equity-related investments. The noticees provided no concrete evidence to substantiate their claim of defensive asset allocation.
 
Moreover, SEBI observed that the noticees appeared to time transactions to avoid month-end reporting discrepancies, suggesting an attempt to circumvent compliance checks. The defence that these portfolio changes were brief was not accepted, given that the deviations spanned 88 days across four months.
 
SEBI held CEO Radhika Gupta and fund manager Trideep Bhattacharya accountable for the violations. As a CEO, Ms Gupta was obligated under Regulation 25 (6A)(a) to ensure the organisation's compliance and manage risks, a responsibility she argued was delegated to specialised teams. SEBI, however, maintained that Regulation 25 (6A)(a) places direct accountability on the CEO, regardless of delegation.
 
Further, Mr Bhattacharya, as the fund manager, was also responsible for adhering to the fund's objectives and ensuring that investments aligned with regulatory requirements. His defence that SEBI's regulations lack a defined standard of care for fund managers failed to convince the market regulator, as did his argument that he aimed to fulfil his responsibilities by focusing on long-term appreciation of unit-holders' interests. SEBI underscored that Mr Bhattacharya's role required strict adherence to the scheme's specific objectives, including the 30-stock limit
 
Edelweiss Asset Management was penalised Rs 8 lakh and Rs4 lakh each on Ms Gupta and Mr Bhattacharya.
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