Odd defence: Brokerage says zero earnings, 'only paying fees and penalties'; seeks leniency from Sebi

The investigations also indicated that in 12 out of the 18 instances, funds and securities of clients were misutilised towards meeting margin obligations of proprietary trading by the stock broker.

A stock broker who was being investigated by the market regulator for misutilisation of clients' funds readily accepted that it has violated regulations but pleaded for leniency citing an odd reason. The broker asked for leniency citing its intent to shut down its business because it wasn't earning anything but was "only paying (regulatory) fees and penalties".

In fact, the brokerage submitted that they had to close down the office because they could not afford the rent.

Golden Maple Commodities and its directors Sanjay Kumar Mishra and Rupesh Kumar submitted, "LAST FOUR YEARS I AM DOING ONLY COMPLINCE WITHOUT EARNING ANY THING. (sic)"

To this, the market regulator said that future business plans and financial conditions are of no consequence when deciding the penalty for established violations.

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In a recent order, dated May 31, the Securities and Exchange Board of India imposed a penalty of Rs 6 lakhs, after finding that there was misutilisation of clients' funds and there was failure to maintain proper order-placement records.

The regulator's officials had inspected the brokerage at its office and remotely over December 2021. The period under investigation was April 1, 2020, and November 30, 2021.

Investigations revealed a possible misutilisation of clients' funds in 18 of the 18 instances investigated.

The investigations also indicated that in 12 out of the 18 instances, funds and securities of clients were misutilised towards meeting margin obligations of proprietary trading by the stock broker.

In this case, the alleged misutilised amount ranged from Rs 1.96 lakh to Rs 3.51 lakh, with the average amount at Rs 2.41 lakh.

Besides this, investigations also revealed that the broker was not maintaining proper records of clients' trades.

The broker accepted that it had violated the regulations and submitted that its business has been struggling because it wasn't aware of compliance requirements and because of business disruption from the pandemic.

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The broker's submission read:
"WE PAID 13 LAC PLUSE GST PENELTY TO MCX .SIR THIS WAS MY LAC OF COMPLINCE AWARENESS COVID I AM NOT ABLE TO SURVIVE WITH THIS BUSINESS. (sic) WE CLOSED ALL OUR OFFICE NOT ABLE TO PAY RENT . (sic)

SIR I ACCEPT MY VOILATION , LAST FOUR YEARS I AM DOING ONLY COMPLINCE WITHOUT EARNING ANY THING , AS OUR INSPECTION IS GOING ON .KINDLY CLOSE OUR MEMBERSHIP SIR . (sic)”

The regulator's order, issuing the penalty, stated, "The conduct of the Noticee in not complying with the provisions of the SCRA, SEBI Regulations and SEBI Circulars cannot be taken lightly. Considering that, the violations by the Noticees are serious, therefore should be dealt with sternly by imposing monetary penalty as effective deterrence."