SEBI acts against unregistered investment adviser

SEBI acts against unregistered investment adviser

Activities/Representations of Agrich Traders without holding the Registration Certificate as Investment Adviser held to be in violation of SEBI Act and IA Regulations.

Securities and Exchange Board of India (SEBI) had received a complaint against Agrich Traders(Agrich, a sole proprietorship concern of Prakash Shyamlal Rathod) alleged to be involved in unauthorized Investment Advisory activities.

SEBI's preliminary examination found that neither the entity nor its proprietor was registered with SEBI. The entity was providing advisory services to the investors who subscribe to their packages mentioned on the website. During the examination of Bank Statements of IDFC First Bank, it was noted that Agrich has a bank account in Bank of Baroda also. The total credit received in the three accounts were Rs.1.26 crores.

Herein, the Whole Time Member observed from the contents of the website of Agrich that it was holding itself out as investment adviser by prima facie offering to provide investment advice as defined under regulation 2(l) of IA Regulations by offering to give advice related to investing in, purchasing and selling in securities and was also offering various investment packages for a subscription.

Further, as noted from the bank accounts that there are multiple credit entries which when seen together with the contents of the websites led to, on the preponderance of probability basis, a prima facie conclusion that the credit entries in the bank accounts were consideration for the investment advice given by Agrich to its clients. Thus, prima facie Agrich was an investment adviser as defined under regulation 2 (m) of IA Regulations.

Further, as per Regulation 3(1) of the SEBI (Investment Advisers) Regulations, 2013 (IA Regulations), the registration of the investment advisers is mandatory. It provides that, "On and from the commencement of these regulations, no person shall act as an investment adviser or hold itself out as an investment adviser unless he has obtained a certificate of registration from the Board under these regulations".

In order to ensure that the investors who receive investment advice are protected, it is imperative that any person carrying out investment advisory activities has to necessarily obtain registration from SEBI and conduct its activities in accordance with the provisions of SEBI Regulation.

The activities of Agrich showed that it was holding itself out and acting as an investment adviser. However, no material was available on record to indicate that Agrich, or its proprietor Prakash Shyamlal Rathod were holding a certificate of registration as an investment adviser. In this context, it was noted that Agrich or its proprietor in their individual capacity are not registered with SEBI in any capacity. The characteristics and features of the business activity carried out by Agrich, prima facie, led to the conclusion that Agrich was holding itself out and acting as an investment adviser without a certificate of registration.

Thus, these activities/representations without holding the certificate of registration as investment adviser was prima facie held to be, in violation of Section 12(1) of SEBI Act read with Regulation 3(1) of the IA Regulations.

It, therefore, became necessary for SEBI to take urgent steps to prevent Noticee from diverting the money collected from the subscribers/clients. It was also essential to take urgent steps to prevent them from alienating any assets, whether movable or immovable, or any interest or investment or charge in any of such assets, so that the final remedies, if any, do not become infructuous.

It has been opined that considering the interests of already existing clients of the Noticee and also the interests of those who may fall prey to the unregistered investment advisory by reaching him through the telephone calls, the balance of convenience lies against the Noticee, and requires immediate action against him including not to divert the money collected from the subscribers/clients/investors.