SEBI penalizes JM Financial, former CEO Bhanu Katoch and others for flouting rules

SEBI Penalizes JM Financial, Former CEO Bhanu Katoch And Others For Flouting Rules

The fine must be paid within 45 days

The Securities and Exchange Board of India (SEBI) has imposed a Rs.2 crore penalty on seven entities, including JM Financial Asset Management Ltd, its trustee and former CEO Bhanu Katoch, for flouting regulatory norms.

A fine of Rs.25 lakh was levied on JM Financial, Rs.10 lakh on JM Financial Trustee Company, Rs.1.1 crore on Bhanu Katoch, Rs.17 lakh on his mother Swarn Lata Katoch and Rs.8 lakh on his wife Sharika Kher.

Additionally, the capital markets watchdog slapped a fine of Rs.22 lakh on Deepen Doshi, who was head of institutional sales at JM Financial Asset Management during the violation, and Rs.9 lakh on his mother Aruna Doshi.

In its order, SEBI noted that the five persons invested in JM Financial Mutual Fund schemes, holding the defaulted Dewan Housing Finance Corporation Ltd (DHFL) securities before the valuation change, using unpublished information, denoting unfair trading.

Moreover, the investments were made before informing the unit holders. This violated SEBI’s regulations and the AMC's policy on employee investments. Collectively, they gained over Rs.1 crore.

The 86-page SEBI order read, "The noticee No.1 (Bhanu Katoch) and noticee No.4 (Deepen Doshi) held important positions as Chief Executive Officer and Head of Institutional Sales, respectively, during the examination period. By virtue of their positions, they were privy to non-public material information regarding the impending sale of defaulted securities of DHFL.”

It added, “They put their interests over the interests of unit holders and misused their positions by taking undue benefits.”

The markets regulator said that JM Financial Asset and JM Financial Trustee were responsible for promptly and accurately informing all unit holders about the schemes' general affairs, including the reasons for the net asset value (NAV) increase, but failed to do so in time.

SEBI added that JM Financial Asset and JM Financial Trustee could not abdicate their responsibility of disclosing to the investors by merely averring that the sale of defaulted securities had a positive impact on the NAV.

It said that noticee No.6 (JM Financial Asset) and noticee No.7 (JM Financial Trustee) disclosed relevant information in the annual report for FY 2020-2021 on the sale of defaulted securities. However, the report was issued on 10 April 2021, which means almost nine months after the sale of defaulted securities.

SEBI’s order came on noticing a news report in July 2020, stating an unusual 19.9 percent increase in the NAV of JM Low Duration Fund and other debt funds. This rise was primarily due to the sale of defaulted securities from DHFL, which matured in 2019.

The 23 June 2020, SEBI order allowed transactions in the matured downgraded securities, enabling the sale. Since these securities had a 'Nil' valuation, their sale value was entirely considered a gain, causing the NAV to rise.