Financial “Advisor” Penalised by SEBI for Pushing Risky Investment Products
Market regulator Securities Exchange board of India (SEBI) has directed Indore-based Star India Market Research and its proprietor Dharmendra Kumar to pay a penalty of Rs40 lakh for pushing its clients towards investments with a higher risk profile than they could afford. 
 
The investment advisor was found offering high risk products meant for high networth individuals (HNIs) to clients who were in the age-bracket of 18-20 years and very senior citizens who were above 80 years and have annual income of less than Rs5 lakh.
 
An order passed by Maninder Cheema, adjudicating officer of SEBI, says, "I note that actions by the noticee (Star India Market Research) indicated an effort to push its clients towards investments with a higher risk profile than they could afford, in breach of its fiduciary responsibility. Taking advance payments and pushing multiple products on to investors implied more interest in generating business in disregard for and at the cost of the investment needs of clients, as assessed based on their risk profile and savings capacity. Taking into account the facts and circumstances of this case, I am of the view that a penalty of Rs40 lakh under Section 15HB of the SEBI Act will be commensurate with the violations committed by Star India Market Research." 
 
After checking some of know-you-customer (KYC) data submitted by the investment advisor, SEBI found that most clients have annual incomes of Rs1 to Rs5 lakh, had no prior experience with trading in securities or were too old to go in for high a risk product. Yet, they were sold stock futures, stock option premium, and stock cash, as shown in the following table:
 
 
SEBI also found that Star India Market Research had sold products meant for HNIs with an income of over Rs25 lakh to his clients, who have gross annual income of less than Rs5 lakh. 
 
In addition, in 62 instances, Star India Market Research received payment as fees for services to be rendered in future and had collected Rs44.21 lakh from clients. 
 
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    COMMENTS

    Suketu Shah

    7 days ago

    best is learn investing yrself.donot use service of any advisor.

    Kali Raj

    2 weeks ago

    Iam also applied for claim please do the needful as early..

    Ramesh Poapt

    2 weeks ago

    there are thousands of such cases, in not lacs....particularly in
    insurance, mf included. and top of it, Portfolio M S!

    Rajendran

    2 weeks ago

    I have seen that commission is being paid by MFs which is almost equal or more than the dividends earned by the investor. SEBI should restrict the commission on the basis of the performance of the MF.

    Is the Compliance Officer Responsible for Regulatory Filing after Tendering Resignation?
    The status of key managerial personnel of a company bestows on the company secretary manifold functions and responsibilities under various provisions of law, inter alia, Section 205 of the Companies Act, 2013, Regulation 6 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and other such requirements. However, there has always been a question regarding the extent to which a company secretary is required to go for the purpose of fulfilling her duties towards the organization and those associated with it. 
     
    Herein, it is pertinent to note that every responsibility comes with a set of liabilities on the respective person. In certain circumstances, those endless duties and responsibilities may lead the professional to face unjustified repercussions which may considerably impact his professional repute in the industry. Accordingly, one may consider analyzing the boundaries of the role of a compliance officer in an organization, whether the same shall be as a ‘safeguard’ to ensure the adequacy of compliances or as a ‘watchdog’ to detect and be a sentinel for any non-compliance in the company. 
     
    In this article, we shall discuss a recent order dated 28 June 2019 (http://sat.gov.in/english/pdf/E2019_JO2018480.PDF) passed by the Securities Appellate Tribunal (SAT) in the case of Pooja Mahna vs Securities and Exchange Board of India, quashing the SEBI order passed in the matter, on 26 October 2018 (https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/oct-2018/1540568876951.pdf#page=1&zoom=auto,-15,841), to analyze the role of a compliance officer and his need in the present times.
     
    Brief Facts of the Matter
     
    1. Share prices of BGIL Films & Technologies Ltd (hereinafter, referred to as “BFTL/Company’) suddenly shot up after the company’s merger announcement. SEBI investigated and found that BFTL did not disclose the price sensitive information to the stock exchange, or its decision to cancel the proposed merger taken during BFTL’s board meeting held on 23 February 2010. The non- disclosure of such information was considered by the compliance officer of BFTL, who was responsible for all the regulatory compliances of BFTL, as  a violation of regulation 12(2) of SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereinafter, referred to as “PIT Regulations, 1992”) read with clause 2.1, clause 3.2 and clause 7(ii) of the schedule of the code of corporate disclosure practices for prohibition of insider trading as specified in schedule II of these regulations (https://www.sebi.gov.in/acts/insideregu.pdf). SEBI issued a show cause notice on 2 February 2017 to the compliance officer.
     
    2. On being heard, the compliance officer stated that it had been almost seven years since she was in the employment of BFTL (period of employment in BTFL being from February 2009 to March 2010) and that she had resigned on 19 February 2010 and was serving the notice period while the said meeting dated 23 February 2010 was conducted and that she did not have any access to the records of that period.
     
    3. The chairman of the company had also issued her a letter dated 15 February 2018 stating and confirming that she was not involved in the said board meeting dated 23 February 2010 and that she was therefore, not responsible for the consequent compliances/non-compliances or disclosure/non-disclosure with respect to the board meeting held on 23 February 2010.
     
    SEBI Order Dated 26 October 2018
     
    On considering the facts of the matter, the adjudicating officer stated that although there was a benefit of doubt in favour of the compliance officer, she was responsible for the failure on her part and liable to pay a penalty of Rs50,000 for not complying with the disclosure requirements under the PIT Regulations, 1992.
     
    Order by SAT reversing the SEBI Order
     
    1. SAT on considering the facts, that despite the admitted position of the compliance officer and ample evidence on record to prove her not being involved in the said board meeting, held that the adjudicating officer, even after observing that a benefit of doubt should be given to the compliance officer, imposed a penalty in a case where she was clearly serving the notice period subsequent to her resignation. Accordingly, the question of imposition of penalty for non-compliance of the regulation does not arise in the case and therefore the impugned order could not be sustained.
     
    2. Also, in view of the fact that the appellant had to undergo the litigation process and face harassment for almost a year and a half, coupled with the substantial costs incurred on the lawsuit,  was entitled to a compensation of Rs50,000.
     
    Analysis of the Case
     
    The order passed by SEBI was similar to the order by the Financial Services Authority imposing fines on the company and its CFO respectively, in the matter of Universal Salvage plc and Martin Chrisopher Hynes for the breach of the market abuse regulations due to delay in announcing the price sensitive information to the market. 
     
    On having a conservative approach to the decision of SEBI, it may be understood that notice period of any employee is not excluded while considering a person’s tenure in any organization. The period during which a person holds a designation, automatically holds him liable for the duties and liabilities associated with the said designation while he is in the office. Also, the regulations are clear on defining the responsibility of the official for ensuring that the company complies with continuous disclosure requirements. However, in the present case, the benefit of doubt as upheld by SAT adequately comes to the rescue of the compliance officer, since the chairman of the company himself absolved the compliance officer of the responsibility for compliances, stating that the compliance officer was not given access to the related records after she tendering her resignation, which was in sufficiently in advance of the meeting.
     
    Need of the Hour
     
    Bearing the requirements of the PIT Regulations in mind, one cannot contend that any information which is expected to be price-sensitive should be announced promptly after it becomes known to a director or the senior management and/or is the subject of a decision by the directors or senior management of the company.
     
    However, in case of inadvertence or negligence, there should be due consideration and analysis of the facts and circumstances of the exact instance before holding the compliance officer liable for every violation. It goes without saying that the compliance officer of a company is responsible and authorized to oversee the adequacy of the compliances within the organization. However, it may not be expected of him to go into an investigating mode to dig into or rectify the non- compliances, especially those which may occur without his knowledge or in his absence. 
     
    Having said so, it is also pertinent to note that with the increasing number of compliance requirements and the strictness of the regulators in the present scenario, it is of utmost importance for professionals to be proactive in understanding and performing their duties in order to safeguard their companies from the occurrence of any violations and the repercussions that follow. Senior management, which specifically includes the compliance officer, cannot be expected to be oblivious of such activities or circumstances in the organization which might lead to any sort of non-compliance, at least during his tenure the office. In an ideal scenario this shall hold equally good, whether the compliance officer is serving a notice period or is absent for a limited period.
     
    Conclusion
     
    A company secretary or a compliance officer plays a vital role in ensuring that his company complies with the requirements of law both in the letter and spirit. Besides ensuring compliance with the statutory responsibilities, the professionals are expected to be proactive in updating themselves regarding the changing rules and laws. As regards the compliance burden during the notice period, the same should be placed on such compliance officer only to a reasonable extent and as per the terms between the management and such officer. While it may not be practical to list the role of a compliance officer in bulleted points, he may construed as the guardian for ensuring proper compliance of the law and best practices within an organization.
     
    (The writer is manager in the corporate law division at Vinod Kothari & Co.)
     
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    SC seeks Unitech home buyers’ suggestions on NBCC proposal
    The Central government on Monday told the Supreme Court that the NBCC is willing to complete pending housing projects of Unitech under a court-appointed monitoring committee, headed by a retired high court judge, which would eventually hand over the possession of the flats to home buyers in a time-bound manner.
     
    Attorney General K.K. Venugopal submitted that they have filed the report along with the NBCC's proposal. "In the report filed before the court, we suggest that a Committee be constituted to oversee be completion of the project," he said.
     
    A bench of Justice D.Y. Chandrachud and Justice M.R. Shah said that the proposal submitted by the NBCC will be vetted by the Committee, suggested by the Attorney General.
     
    The NBCC has sought Rs 50 crore as construction fee and two per cent of the entire project for due diligence, before beginning the process of construction.
     
    M.L. Lahoti, counsel for the home buyers, however, contended that this proposal from NBCC is not similar to its proposal earlier shared in Amrapali. "We strongly disagree with this demand of the NBCC before it takes over pending projects," he said.
     
    During the course of hearing, arguments were made about the capability of the NBCC to carry out the construction work as it is already handling Amrapali's pending projects, and it is likely to take over construction of Jaypee as well.
     
    The Attorney General said that L&T had initially made a proposal but later refused to take over the project.
     
    The court observed that the NBCC will not execute the work but will only oversee the construction. "The work might be sub-contracted, if required. And, the whole project will also be monitored step by step by the Committee suggested by the AG," it said, adding that no stay has been granted related to construction.
     
    At the end of the hearing, the court observed that there should be one counsel for all the home buyers in order to streamline the process of hearing on the matter.
     
    The court also directed the amicus curiae in the matter to upload the NBCC proposal on the website for the home buyers to go through the proposal, and submit their suggestions by August 2. The amicus curiae shall collate the suggestions and put them up on website too.
     
    The court will next hear the matter on August 9.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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