Proceedings were initiated against Aditya Birla Money based on a joint inspection conducted by Sebi, BSE, NSE and the depositories in March 2019. A special purpose inspection was also conducted by Sebi in March 2018.
Based on the findings of the inspection, the market watchdog initiated adjudication proceedings.
“A registered stock broker should maintain high standards of integrity, exercise due skill and care, comply with statutory requirements and should not make investment advice to client in ordinary circumstances, which was not followed by noticee,” Sebi said.
Noticee refers to Aditya Birla Money Ltd (ABML).
It has done Portfolio Management Services for clients without entering into any agreement, in violation of stock broker norms.
Aditya Birla Money did not have adequate systems and internal controls to ensure due skill, care and diligence in conduct of its business and dealing with their clients, Sebi noted.
In addition, it misled the clients by understating losses and overstating profits, the watchdog’s findings observed.
It is the responsibility of ABML to inform the correct position to the investors, especially if they are sending any statement other than what is statutorily prescribed, as per the regulator.
“However, in these cases, several reports/statements sent by ABML understated the losses and shown fictitious/overstated profits which was to mislead the clients,” Sebi said.
It appears that by concealing the material facts and by giving false statements, clients were made to trade in the strategy proposed by ABML and thereby they continue to earn brokerage and other charges, the regulator noted.
Sebi also found violation of own guidelines by ABML and a lack of adequate systems and internal controls.
Besides, Sebi noted that “the Noticee has admittedly not settled the funds of inactive clients during the inspection period as mandated by SEBI circular.”
Non-settlement of funds and securities of inactive client by the noticee exposes the system to unauthorized trading, it added.
During inspection, 160 instances were observed where securities were transferred from client demat to pro account.
Among other lapses, Sebi found delay on part of ABML in uploading client details in central know your client system.
Consequently, Sebi has slapped total fine of Rs 1.02 crore and has noted that certain violations by ABML are repetitive in nature.
The fine amount has to be paid within 45 days.