Broker commits 'flagrant' violations and then ‘ghosts’ SEBI

In June 2022, the SEBI-appointed DA recommended that the broker’s registration be cancelled.

A broker has committed “flagrant” violations of many regulatory provisions, including misusing client funds, non-settlement of client funds and not adhering to the Know-Your-Client, and then has ‘ghosted’ the regulator.

Mails sent to the broker have either been ignored or were returned undelivered to the regulator.

Finally, the Securities and Exchange Board of India (SEBI) cancelled the Certificate of Registration of Fairwealth Commodity Broking (FCBL) in an order dated July 19.

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The findings of the regulator “demonstrate flagrant violation of the provisions governing the functioning of a stock broker and deep apathy towards the interests of the clients”, stated the order.

SEBI officials investigated the broker between April 2017 and December 2018 and found the broker in the wrong on multiple counts. The report brought out failure to segregate client funds from own funds; misuse of clients’ funds; non-settlement of clients’ funds; non-production of enhanced supervision data; non-adherence to stipulated client registration process (KYC and KRA process); and uploading of incorrect mobile number and email ID in UCC database.

The regulator appointed a Designated Authority (DA) to look into these findings and sent a showcause notice to the broker.

But, the post sent to the registered address returned undelivered and an email sent to the registered email ID bounced back.

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Then the regulator published ads in various papers asking the broker to appear for a hearing in May 2022.

Through another email ID, which was later found to be that of the director of the firm, the broker asked for an extension on the hearing date, citing medical conditions. But that request was denied by the regulator since a considerable time had passed. That mail, sent to the director’s ID, didn’t bounce back but it got no response.

On the date of the hearing, no representative of the brokerage showed up.

Therefore, in June 2022, the DA recommended that the broker’s registration be cancelled.

Then a post enquiry report was sent to the broker in July 2022. That mail returned to SEBI with the comment that there was “no such office”. SEBI affixed the notice on the office, and in that, the date for personal hearing was again given, this time in May 2023.

Then a hearing notice was sent to the same address and, when that too came back undelivered, the notice was affixed on the office. Again, no one from the brokerage showed up for the hearing.

In the interest of personal justice, another opportunity for personal hearing was granted with the date July 13, 2023. The hearing notice for this too came back undelivered and an email was sent to the broker’s director’s email id, which again received no response.

Therefore SEBI went ahead with the proceedings with the material on record and found the broker in violation of all the charges made.