Oops! Investment Advisor emails evidence of misconduct to SEBI, implicates self

Wealth Factor was found in violation of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, the SEBI Act and the IA Regulations.

An investment advisor (IA) seems to have handed over evidence that he was in violation of SEBI rules, even with a helpful labelling.

The Securities and Exchange Board of India (SEBI) had inspected the operations of a registered investment advisor Wealth Factor, whose proprietor is Snehil Sharma, between April 1, 2020 and July 18, 2022.

During the inspection, the SEBI officials found evidence that the IA was promising guaranteed/unrealistic returns and profits to the clients, and creating an impression that investment advice is risk-free. Moneycontrol could not reach the IA at the time of this article's publication. The article will be updated if a response comes in.

There were suggestions of other violations too such as selling the same product to the clients for the same service period to extract maximum amount of fees from clients, providing the same service to multiple clients irrespective of their risk profiles, not having an anti-money laundering policy and not providing training to employees related to the Prevention of Money Laundering Act and so on.

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On the charge that Wealth Factor was guaranteeing or promising unrealistic returns, the IA contested the regulator's claims. The IA submitted that it has a disclaimer that investment in securities are subject to market risk and that its client-onboarding email also says that it does not guarantee profits. Then it contested the findings provided by SEBI's investigating officials saying that there was no evidence such a verified voice recording to support their claims, that only selected portions of the conversations were picked without understanding the context of the communication and that there was no forensic verification done to attribute the alleged recording to the IA or its employees.

But after making these submissions, the IA seems to have made a gaffe.

It sent an email to SEBI, on July 25, 2022, saying that it was sending "sample call recordings in which profit is committed/guaranteed attached with respect to ongoing inspection of Wealth Factor Investment Advisor". The SEBI's Adjudicating Officer Amit Kapoor, in the order dated April 8, also noted that the IA himself provided the sample recording for the regulator's inspecting officials.

As Kapoor noted, " Therefore, it is clear that he accepted that his employees guaranteed profits to clients and cannot question the authenticity of the call recordings at this stage."

The order goes on to say: "It is clear that although Noticee (Wealth Factor) mentions in his website and welcome letter that no profit is guaranteed, his own employees while dealing with the clients do not follow the same and tries to induce the clients promising guaranteed returns. Hence, it is established that the Noticee adopted the following unfair and fraudulent practices to lure clients and maximize revenue:
a) Promising guaranteed/unrealistic return to the clients.
b) Promising guaranteed profit to the clients.
c) Creating an impression that investment advice is risk-free, is not
susceptible to market risks.
d) Luring clients by providing wrong information of having connections with nifty/bank nifty and getting calls from them"

Wealth Factor was thus found in violation of Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, the SEBI Act and the IA Regulations.

The IA was fined Rs 8 lakh for this and various other violations.