Misuse Of Client Funds Is Serious Violation: SEBI Penalizes Goldenmaple Commodities For Misuse Of Client Funds And Record-Keeping Failures

The Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs 3 lakh each on Goldenmaple Commodities Pvt Ltd and its directors, Sanjay Kumar Mishra and Rupesh Kumar, for regulatory violations. The violations included misutilisation of client funds and failure to maintain proper records for client order placements. In an adjudicating order, SEBI highlighted the misuse of client funds by Goldenmaple Commodities and held that the broker's contention of the pandemic and the death of a promoter being reasons for non-compliance were unacceptable. SEBI held that no relaxation was provided due to the pandemic for the specific guidelines and circulars violated by Goldenmaple Commodities. Goldenmaple Commodities was found to have misused client funds. Specifically, in 18 sample cases, the 'G' parameter indicated negative balances. This suggested that the firm used the credit balances of some clients to meet the obligations of other clients with debit balances or for its own internal purposes. The amounts misused ranged from Rs 42.94 lakh to Rs 46.53 lakh, with an average misuse amount of Rs 44.52 lakh. Additionally, the 'I' parameter, which indicates the misuse of client funds and securities to meet margin obligations for proprietary trading, was negative in 12 out of 18 sample instances. These amounts ranged from Rs 1.96 lakh to Rs 3.51 lakh with an average of Rs 2.41 lakh. Furthermore, SEBI found that Goldenmaple Commodities failed to retain call recordings for order placements in 21 out of 25 sample trades. The company also did not maintain proper order placement records for any of the 25 sample trades, which reflects a lack of due diligence and raises concerns about the company's adherence to regulatory standards, especially during the COVID-19 pandemic. According to the SEBI Act and the Securities Contracts (Regulation) Act (SCRA), the directors are accountable for the broker's conduct and the violations committed. SEBI referred to its Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95, dated September 26, 2016, which outlines the principle that the total available funds with a stockbroker should always be equal to or greater than clients' funds as per ledger balance. Any negative 'G' value indicates that clients' funds have been used for purposes other than meeting their specific obligations. Goldenmaple Commodities consistently showed negative 'G' values across 18 sample dates which confirmed the misutilisation of client funds. SEBI held that the misuse of client funds is a serious violation. The funds in client accounts should only be used to meet the specific clients' obligations, as per SEBI rules and regulations. It held that the failure to maintain proper records and call recordings further compounds the seriousness of the violations. Goldenmaple Commodities' inability to maintain call records and proper order placement records was a significant lapse. Click Here To Read/Download Order

Misuse Of Client Funds Is Serious Violation: SEBI Penalizes Goldenmaple Commodities For Misuse Of Client Funds And Record-Keeping Failures

Rajesh Kumar

Tags