SEBI Levies Rs. 6 Lakh on Employee and Manager for Forging Documents and Defrauding Investors

SEBI Levies Rs. 6 Lakh on Employee and Manager for Forging Documents and Defrauding Investors

The Securities and Exchange Board of India (SEBI) has imposed a fine of Rs6 lakh on Pooja Patidar (Noticee 1) and Vikas Gupta (Noticee 2) for false representation, forging documents and defrauding investors. Ms Patidar worked as a compliance officer at Investment Research Advisors (IRA), while Mr Gupta was a portfolio manager of Algos Systems Pvt Ltd, respectively. However, SEBI found both the Indore-based firms linked with each other during an investigation.

SEBI received several complaints on its Online Complaint Redressal System ('SCORES') against M/s. Investment Research Advisors (hereinafter referred to as 'IRA').

The Show Cause Notices (SCN) were issued to the Noticees, which inter alia, alleged that Noticee 1 in a written submission to SEBI had provided false information intended to mislead SEBI. It was therefore alleged that Noticee 1 had violated Clause 8 of the Code of Conduct for Investment Advisers as specified in Schedule III of SEBI (Investment Advisers) Regulations, 2013 (SEBI IA Regulations) read with Regulation 15(9) of SEBI IA Regulations.

The allegation levelled against Noticee 2 was that the Noticee had shared a forged SEBI registration certificate of Algo Systems bearing SEBI registration Number with a client to seek business from him. Further, the Noticee 2, being a portfolio manager of Algo Systems transferred the amounts of payments made by the client in Algo Systems' bank account to the bank account of one Mr. Amit Gangrade, a proprietor of IRA. Therefore, Noticee 2 had violated Regulation 3(a), (b), (c) and (d) and 4(2) (o) and 4(2) (s) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (SEBI PFUTP Regulations, 2003) read with Section 12A (a), (b), and (c) of SEBI Act, 1992.

However, the Noticee 1 neither furnished reply and nor made personal appearance. Noticee 2 attended the hearing but did not submit any reply to the SCN. During the hearing, Noticee 2 feigned ignorance of the matter and denied his association with any any Sudeep Gangrade proprietor of Algo Systems and Amit Gangrade, proprietor of IRA.

The single adjudicating officer (AO) Sahil Malik, referred the decision passed by Securities Appellate Tribunal (SAT) in the matter of Sanjay Kumar Tayal vs SEBI held that "appellants have neither filed reply to show cause notices issued to them no availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted to the charges levelled against them in the show cause notice."

The following issues arose for consideration:

Issue I. Whether Noticee 1 has violated Clause 8 of Code of Conduct for Investment Advisers as specified in Schedule III of SEBI Investment Advisers Regulations read with Regulation 15(9) of SEBI IA Regulations? And Whether Noticee 2 has violated Regulation 3(a) (b), (c) and (d) and (4) (2) (o) and 4 (2)(s) of PFUTP Regulations, 2003 read with Section 12A(a), (b) and (C) of SEBI Act, 1992?

Issue II. Do the violations, if any, on the part of the Noticee I and Noticee II attract monetary penalty under Section 15HB & Section HA of SEBI Act, 1992 respectively?

With respect to Issue I, the Board noted that, Noticee 1 in her written submission to SEBI had submitted that the bank account of Algo System belonged to an executive of Algo System. However, as per ICICI bank response to SEBI dated 20th November, 2019 the said account no. belongs to Algo System and its proprietor was Sudeep Gangrade and not the executive. The Board noted the said ICICI Bank Account of Algo systems, most of the proceeds received from the clients were received in the account of Algo System and then transferred to the bank account of the employer of Noticee 1, Shri Amit Gangrade, proprietor of IRA. The Board found that Noticee 1 had tried to also cover up the wrongdoings with regard to fund transfer between her employer and Sudeep Gangrade who is related to him. The Board found that the Noticee 1 had violated Clause 8 of Code of Conduct for Investment Advisers as specified in Schedule III of SEBI Investment Advisers Regulations read with Regulation 15(9) of SEBI IA Regulations.

The Board found that Noticee 2 managed to misrepresent to an innocent investor by producing forged documents and soliciting huge payments from him i.e., to the tune of around Rs. 25 lakhs by associating himself with an unregistered Investment Adviser. The Board held that Noticee 2 dealt with his client in a fraudulent manner employing manipulative and a deceptive device viz a forged registration certificate, to get business and solicit payments from the client to earn income account and transferred the same proceeds to another account, with a manipulative intention and therefore Noticee 2 had violated Regulation 3(a) (b), (c) and (d) and (4) (2) (o) and 4 (2)(s) of PFUTP Regulations, 2003 read with Section 12A(a), (b) and (C) of SEBI Act, 1992.

With respect to Issue II, the market regulator was convinced that the Noticee 1 and Noticee 2 are liable for monetary penalty under Section 15HB and Section 15HA of the SEBI Act, 1992 respectively, for violation of the above-mentioned IA and PFUTP Regulations.

The market regulator observed, "Noticee 1 by providing false information intended to mislead SEBI lacked integrity while conducting her business. Noticee 2 by providing a forged registration certificate to his client, defraud the investor and solicited payments fraudulently. SEBI as a regulator is under a statutory duty to protect the integrity of the securities market and also the interest of investors in securities apart from promoting the development of and regulating the market by such measures as it may think fit. The purpose of the Regulations is to achieve the said objects and make the securities market a safe place to invest. Non adherence to the Code of Conduct as well as the SEBI regulations by intermediaries would lead to investors not having any confidence in investing their hard-earned monies which in return would affect the development of the securities market."

Therefore, the board imposed a penalty of Rs. 1,00,000 on Ms. Pooja Patidar and Rs. 5,00,000 on Mr. Vikas Gupta.