Did this advisory firm proprietor just try to misdirect Sebi, and fail?

Sebi was investigating Jitender for providing advisory services before getting his RA registration in 2016.(Photo by ROCKETMANN TEAM: Pexels)

A person’s apparent attempt to misdirect the market regulator by calling its attention to an inconsequential detail, away from the bigger reality of providing investment advice without registration, seems to have failed.

Jitender (no last name given in a Sebi order), the proprietor of Bigprofitbuzz, contended that he was being investigated for violation of rules pertaining to investment advisors when his work fell under regulations for research analysts.

As the market regulator Securities and Exchange Board of India (Sebi) noted in its order, Jitender submitted that at best it can be alleged that he had acted as an "unregistered research analyst" and not that he had acted as an "unregistered investment advisor".

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However, Sebi, in its July 18 order, found this submission to be “of no merit”. The regulator said Jitender had been giving investment advice without registering as an investment advisor or research analyst and asked him to refund the fees collected.

Sebi was probing him for offering advisory services during 2013 to 2016. The fees he collected in this time amounted to a little over Rs 26 lakh. And, he registered as a research analyst only in May 2016.

A screenshot of Jitender’s website from April 2013, included in Sebi’s show-cause notice, has details of packages for investment advisory services and the account number to which fees for the service were to be sent.

"It was clear that Jitender was giving investment advice and acting as an unregistered investment advisor before obtaining registration as a research analyst," Ananta Barua, a whole-time member of Sebi, said in the order.

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Barua noted that while Jitender is now registered as a research analyst, the allegations against him in the show-cause notice were for the pre-registration period.

“I also note that the noticee has made full disclosure while obtaining the said registration regarding his activities before obtaining the registration. However, subsequent obtaining of registration as RA will not exempt the noticee from providing an opportunity to seek or give refund to his clients who were availing his investment advisory services before he obtained registration as an RA,” Barua wrote.

According to Sonam Chandwani, the Managing Partner of KS Legal & Associates, the regulator's order implicates serious violations of the SEBI Investment Advisers Regulations, 2013, "particularly Regulation 3 which mandates registration with SEBI for providing investment advice".

She said, "The proprietor may face penalties under Regulation 15, which includes refund of fees, and further penal action under the SEBI Act, for contravention of regulations. This could potentially escalate to criminal proceedings under Section 24 of the SEBI Act. Recipients of advice from the unregistered firm may also invoke private rights of action for recovery of losses. The severity of penalties under these laws underscores the importance of regulatory compliance."