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2020 (2) TMI 100 - Board - SEBIProviding Investment advisory services in the name of other name / fake name - Complain by Finvasia Securities Private Limited - Website of accused company illegally using its SEBI registration to conduct business of investment advisory services - HELD THAT - No activity of Fingravy of holding itself to be giving trading tips, stock specific recommendations, etc., to the investors and general public, and payment receipts of the complainant indicating the payment was made for receiving investment advice, the bank statement, prima facie, showing the credit for payment of fees, indicates that there is a preponderance of probability that Fingravy has acted as an investment advisor for consideration. Apart from holding itself out and acting as an investment adviser, Fingravy, through its website, had earlier falsely represented itself as having a SEBI registration number, which belonged to another intermediary, as evidenced from the archive web pages, while presently it has represented that it has applied for a license from SEBI in order to deal in various fields of securities market. Therefore, it is, prima facie, held that Fingravy is claiming/asserting to the general public of facts which it knows are not true i.e., Fingravy knows that the registration number mentioned on its website did not belong to it and that presently, it has not applied for any registration with SEBI and is also actively concealing the truth that it is not authorized to deal in the securities market in any capacity on behalf of investors, so as to lure investors to deal in securities based on their advice. M/s. Fingravy Wealth Creation Services Pvt. Ltd. and its present directors namely, Mr. Dhiraj Gupta and Mr. Sumit Kumar, are directed to i. 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, directly or indirectly, and cease to solicit or undertake such activity or any other activities in the securities market, directly or indirectly, in any matter whatsoever, until further orders. ii. Not to divert any funds raised from investors, kept in bank account(s) and/or in their custody until further orders. iii. Not to dispose of or alienate any assets, whether movable or immovable, or any interest or investment or charge on any of such assets held in their name, including money lying in bank accounts except with the prior permission of SEBI. iv. Immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, communications etc., in relation to their investment advisory activity or any other unregistered activity in the securities market until further orders.
Issues Involved:
1. Whether Fingravy is, prima facie, holding itself out and acting as an investment adviser? 2. If the answer to Issue No. (1) is affirmative, whether Fingravy has, prima facie, violated any securities laws? 3. If answers to Issue Nos. (1) & (2) are affirmative, whether the present and past directors of Fingravy are responsible for the violations committed by Fingravy? 4. If answers to Issue Nos. (2) & (3) are affirmative, whether urgent directions, if any should be issued against Fingravy and its present and past directors? Issue-wise Detailed Analysis: Issue No. 1: Whether Fingravy is, prima facie, holding itself out and acting as an investment adviser? SEBI conducted a preliminary examination of Fingravy's activities based on complaints and information available on its website. The website claimed Fingravy provided various financial advisory services, including stock market tips and investment planning, and charged fees for these services. Payment receipts and bank statements indicated significant transactions from individuals, suggesting fees for advisory services. The website also falsely displayed a SEBI registration number belonging to another intermediary and claimed to have applied for a SEBI license. Based on these findings, SEBI concluded that Fingravy was, prima facie, acting as an investment adviser without proper registration. Issue No. 2: If the answer to Issue No. (1) is affirmative, whether Fingravy has, prima facie, violated any securities laws? SEBI noted that as per Section 12(1) of the SEBI Act and Regulation 3(1) of the IA Regulations, any person acting as an investment adviser must obtain a certificate of registration from SEBI. Fingravy, despite holding itself out as an investment adviser, did not possess such a certificate. Additionally, Fingravy misrepresented itself as SEBI-registered by displaying another intermediary's registration number and falsely claiming to have applied for a SEBI license. These actions were deemed fraudulent under Section 12A(c) of the SEBI Act and Regulations 3(a), (b), (c), (d) and 4(1), 4(2)(k) of the PFUTP Regulations. Issue No. 3: If answers to Issue Nos. (1) & (2) are affirmative, whether the present and past directors of Fingravy are responsible for the violations committed by Fingravy? SEBI held that a company acts through its directors, who are responsible for its conduct. The directors of Fingravy, both present and past, were deemed liable for the company's violations as they were in charge during the period the violations occurred. The directors were expected to exercise due care and diligence, and their failure to ensure compliance with statutory provisions made them accountable for the company's actions. Issue No. 4: If answers to Issue Nos. (2) & (3) are affirmative, whether urgent directions, if any should be issued against Fingravy and its present and past directors? Given the ongoing nature of Fingravy's unauthorized activities and the potential threat to investors, SEBI found it necessary to take urgent preventive action. SEBI directed Fingravy and its directors to cease all investment advisory activities, not to divert funds, and to provide a full inventory of their assets. SEBI also directed banks to freeze Fingravy's accounts and prevent any debits/withdrawals. These measures were deemed essential to protect investors and maintain the integrity of the securities market. Conclusion: SEBI issued an interim ex-parte order directing Fingravy and its directors to cease unauthorized investment advisory activities, not to divert funds, and to provide a full inventory of their assets. Banks were directed to freeze Fingravy's accounts. This order was issued to protect investors and maintain market integrity, pending further investigation and final adjudication.
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