Illegal Financial Advisory: SEBI Officials Collects Proof From Deleted Website Archives, Imposes Penalty Of Rs. 6 Lakh

The Securities and Exchange Board of India (SEBI) imposed a penalty of Rs. 6 lakh on Shashikant Kumar, owner of SM Global Research, for operating an illegal investment advisory service without the requisite registration. Kumar tried to elude regulatory action by deleting the website from which he was running an illegal advisory. But, SEBI traced the website and its contents, which proved the existence of an illegal advisory, by going through its archives. The investigation into Kumar's activities began following a complaint received. The Complainant was contacted by a person claiming to be an employee of SM Global Research offering investment advisory services. Initially, the Complainant made a small profit but subsequently lost Rs 75,000/- and was asked to transfer an additional Rs 1.5 lakh with a promise of fivefold returns which also resulted in losses. Over five installments, SM Global Research collected Rs 1.51 lakh as advisory fees which led to a total loss of Rs 2.75 lakh for the Complainant. When the Complainant requested a refund, Kumar's firm refused. This prompted the Complainant to approach the local police who directed the matter to SEBI. SEBI's investigation revealed that SM Global Research collected over Rs 1.63 lakh in advisory fees through two bank accounts. Despite attempts to erase evidence by taking down the website, SEBI officials retrieved crucial information from web archives which proved the existence of the illegal advisory service. The investigation found that Kumar's activities constituted investment advisory services as defined under Regulation 2(1)(m) of the Investment Advisers (IA) Regulations, 2013. According to these regulations, anyone providing investment advice for consideration is required to register with SEBI. However, neither Kumar nor SM Global Research held the necessary registration which violated Section 12(1) of the SEBI Act, 1992, and Regulation 3(1) of the IA Regulations, 2013. Regulation 2(1)(m) of the IA Regulations defines an investment adviser as anyone engaged in the business of providing investment advice for consideration. This includes advice related to investing in, purchasing, selling, or dealing in securities or investment products. The regulation also mandates that any person acting as an investment adviser must obtain a certificate of registration from SEBI. Further, Section 12(1) of the SEBI Act prohibits any person from acting as an investment adviser without obtaining the necessary registration. This provision ensures that only qualified and certified individuals can offer investment advice, safeguarding investors from fraudulent activities. SEBI issued an order directing Kumar to refund the Rs 1.63 lakh collected from his illegal activities and imposed a penalty of Rs 6 lakh, nearly four times the profits made. Additionally, Kumar was found to have violated multiple regulations under the SEBI Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations. The PFUTP Regulations define fraudulent activities, including misrepresentation and guaranteeing returns, which Kumar was found guilty of. He was accused of making false and misleading statements, promising assured returns, and collecting fees without proper registration. These actions violated Regulation 3(b), (c), and (d), as well as Regulation 4(1) and 4(2)(o) of the PFUTP Regulations, along with Section 12A(a), (b), and (c) of the SEBI Act. Click Here To Read/Download Order

Illegal Financial Advisory: SEBI Officials Collects Proof From Deleted Website Archives, Imposes Penalty Of Rs. 6 Lakh

Rajesh Kumar

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