SEBI levies Rs. 28 lakh penalty on Pinnacle Market Investment Advisory

SEBI levies Rs. 28 lakh penalty on Pinnacle Market Investment Advisory

The Securities Exchange Board of India (in short SEBI) imposed penalty amounting to Rs. 28 lakh on Pinnacle Market Investment Advisory (hereinafter referred to as PMIA) and its directors for violating regulatory norms.

PMIA is a SEBI- registered Investment Adviser (in short IA) and its directors are Abhishek Patel, Shekhar Mishra and Parul Sahu. The market regulator levied Rs. 5 lakh each on Patel, Mishra and Sahu and levied a fine of Rs. 13 lakh on PMIA.

The issue that arose before the board for determination in the present matter was whether Pinnacle and its Directors, while carrying out the activity of Pinnacle as an Investment Adviser, had violated the provisions of securities law as alleged in the Show Cause Notice (in short SCN).

Adverting to the aforesaid issue and the factual matrix of the case, the Board noted that the Noticees were not only facing allegation of non-compliance of provisions of SEBI Act and IA Regulations, but were also confronted with the violation of the provisions of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (in short PFUTP Regulations).

The Board was of the view that, "the company, being an artificial entity, cannot function on its own volition and will move only in such direction, as may be desired and dictated by the Directors who are controlling the overall functioning of the company. As per the existing law and practice, a company acts through its Board of Directors and in the absence of any law prescribing for specific liability, it is Board of Directors, who are collectively liable for the acts or omission of a company. Under the circumstances, having a new Director assumes significance as an important development for the governance of the company since Director is a face of the company before the people, inside the company as well as outside the company. Thus, any change or addition to the composition of Board of Directors of a company is a material information and consequently, any change in the constitution of Board of Directors of a company whether by way of appointment of a new Director or resignation of an existing Director, is also a material information, having important implication for the efficient functioning and management of the company."

In the instant matter, the Board found that there was undeniably delay of around 18 months in informing about the appointment of a new Director in the Company and hence Ms. Parul Sahu had not acted in compliance with the conditions of its certificate of registration and resulting in violation of Regulation 13(b) of IA Regulations.

Further, the board clarified that Regulation 16 of the IA Regulations provides the details / various indicative factors that are required to be considered for the purposes of risk profiling. The risk profile of each of its clients, as assessed by the IA needs to be communicated to respective clients. In this regard, the Board noted from a sample risk profiling forms that Pinnacle did not have an established process or mechanism, such as assigning specific scores or weights to each of the questions stated in the risk profiling form to consider and analyze the risk appetite of the client based on his specific responses to each such question in his risk profiling form.

The Board found PMIA and its directors had sold multiple products to their clients, which do not match the risk profile of the client and further charged exorbitant fees from their clients resulting in the violation of provisions of PFUTP regulations.

Moreover, the Board found that PMIA had failed to abide by Principles of Suitability of advice to its clients, violating Regulations 15 (1) and 17 of IA Regulations. It also noted that PMIA and its directors did not redress the investor's grievances within the timeline prescribed by SEBI.

Therefore, in view of the violations the Regulator prohibited them from the securities market and restricted them to issue prospectus, offer document or solicit money for a period of three years. In addition, Sebi directed PMIA and its directors to resolve the complaints pending against Pinnacle in SCORES within seven days and further settle pending refunds within thirty days.

Further, the Board prevented PMIA and its directors from selling their assets, properties and mutual funds held by them in DEMAT and physical form for other than the purpose of making the refunds.