SEBI makes registration of investment advisory activities mandatory
Unregistered Equity Mania Financial Advisory stands debarred from acting as investment advisor.
In order to protect the interests of investors and integrity of the securities market, Equity Mania Financial Advisory and its proprietor, Ankit Goel have been directed to cease and desist from acting as an investment advisor including the activity of acting and representing through any media (physical or digital) as an investment advisor in the securities market, directly or indirectly, in any matter whatsoever, until further orders.
Herein, Securities and Exchange Board of India (SEBI) had received a complaint against Equity Mania Financial Advisory (sole proprietorship firm of Mr. Goel) alleging that it is providing advisory services without obtaining registration from SEBI.
In view of the complaint received, SEBI carried out a preliminary examination to ascertain whether unregistered investment advisory activities are being carried out by the firm. SEBI's preliminary examination found that the firm held itself as an Investment Advisor and collected subscription fees from investors for providing stock recommendations without obtaining a registration under SEBI (Investment Advisers) Regulations, 2013 (IA Regulations).302 credit transactions had been made in the identified bank accounts of the firm during the period 16 December, 2016, to 8 May, 2020.
The Whole Time Member of SEBI noted that permitting the investors to receive an investment advisory service from an unregistered entity, in effect means, the same is received from the unqualified person without following the safeguards mentioned in the IA Regulations.
An investor receiving a service from unregistered investment advisor vis-à-vis an investor who receives such service from a SEBI registered investment adviser stands at a disadvantageous position in respect of his protection as an investor as envisaged under the IA Regulations.
An unregistered investment adviser has not satisfied the Regulator that he is a fit and proper person to hold the certificate of registration as investment adviser. Availing of service from such persons is detrimental to investors and such unqualified service results in irreparable detriment as the investors' money is invested based on unqualified and unregulated service.
Exposing investors to such service also has the effect of interfering with the development of securities market, as victim of such services tend to lose faith in the securities market. Such an injury/detriment to the development of the securities market also qualifies as an "irreparable injury". The objective of SEBI, as enshrined in the SEBI Act, is not only the protection of investors but also orderly development of securities market.
In the instant case, Equity Mania Financial Advisory was soliciting and inducing investors to deal in securities market on the basis of investment advice, stock tips, intra-day calls etc., prima facie, without having the requisite registration/certification as mandated under the IA Regulations. So, it was held necessary to take urgent preventive action in this matter and to take immediate steps to prevent Equity Mania Financial Advisory through its proprietor, from collecting any more fees from the public and indulging in unauthorized investment advisory activities.
It was also noted that the bank account of Equity Mania Financial Advisory was active. Moreover, the website of the firm was active in the month of November, 2020. Furthermore, the details of the firm including its email and telephone number were mentioned on its website.
Therefore, the threat of investors getting lured towards the unregistered activity of Equity Mania Financial Advisory in the securities market was still in existence and imminent. The amount of money, prima facie, observed to have been collected by Equity Mania Financial Advisory is Rs. 48,52,941 and indicated the magnitude of the prospective threat to the investors.
SEBI has a statutory duty to protect the interests of investors in securities and promote the development of, and to regulate, the securities market. Section 11 of the SEBI Act has empowered it to take such measures as it thinks fit for fulfilling its legislative mandate.
IA Regulations has been formulated with the main objective of regulating investment advisory activities to safeguard the interests of investors and hence registration of investment advisory activities with SEBI has been made mandatory.
The IA Regulations, inter alia, seek to create a structure within which investment advisers will operate and also make them duly accountable for their investment advice by requiring investment advisers to comply with the criteria set out in the relevant provisions of the IA Regulations. The same is imperative for the protection of interests of investors and to safeguard the integrity of the securities market.