An audacious fraud was unearthed by the market regulator, Securities and Exchange Board of India (Sebi), while investigating complaints against a registered investment advisor (RIA), Podium Market Research. Investors who were seeking redress from the capital market regulator by filing a complaint on Sebi Complaint Redress System (SCORES) were defrauded using information from these complaints.
The modus operandi of the fraud
Initially, they had filed a complaint on SCORES asking for a refund of their fee paid to Podium because they were unhappy with the IA’s service. Later, they were contacted by a third party, who referred to their SCORES complaint and asked them to pay goods and services tax (GST) on the fee to release the refund.
The investors received an email from an ID that impersonated the IA’s compliance team and that was misspelled as complaince.podium@gmail.com. The email recorded the refund due to the investor and asked the person concerned to deposit the outstanding GST and get the money back.
To win over the investors' confidence, the fraudsters even asked the investors to copy an email address that was meant to look like Sebi's. They were asked to send a copy of the email to sebipatna@gmail.com.
The wrongdoings came to light when Sebi began investigating the complaints filed against Podium through the SCORES platform.
Sebi’s investigations revealed that the person who contacted the complainant-investors was Prakash Kumar, a former employee of the IA. The regulator also found that Kumar's sister Roshni Kumari's bank account was misused for fraudulent activities.
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Sebi quashes IA’s defence
In an order dated August 16, the regulator has fined Kumar and Kumari Rs 7 lakh each, and also slapped a penalty of Rs 25 lakh against Podium's proprietor for lack of due diligence and failure in maintaining confidentiality of information on SCORES complaints and other violations.
Podium submitted that the clients’ details were collected by Kumar, when he was an employee with the firm between July 1, 2019, and February 15, 2020. The IA said that Prakash contacted the clients and “lured them” to file a complaint against the company, assuring them that they would get their fee back. The IA also submitted that Kumar had filed the complaint on behalf of the investors on SCORES.
However, the regulator did not find the defence “tenable”. Sebi's official pointed out that the complaint is filed electronically and the communication is restricted to three parties — the registered intermediary against whom the complaint is filed (the IA), the regulator and the complainant. As per clause 4 of code of conduct for IAs, a registered firm is required to maintain the confidentiality of information of its clients. The IA should have checks and balances to ensure that clients' data is not leaked.
The Sebi order said, the contention of the IA (that the former employee was to blame) was found to be “not tenable”.
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The regulator also found that the IA had violated other provisions. The IA did not have the required National Institute of Securities Markets (NISM) certification between October 22, 2024, and February 26, 2024; it was not maintaining the necessary records such as the agreement executed with the clients since April 2021; had taken fees from clients in excess of the limit of Rs 1.25 lakh per annum; and for defrauding its clients by citing the reverse-charge mechanism under GST, to collect GST in financial year (FY)19 and FY20 without having GST registration.
Under the reverse charge mechanism, the recipient is required to pay GST.
Though the IA was marking a ‘no’ against reverse charge mechanism (RCM) on the invoices, it was mentioned as a condition on terms and conditions of service.
Sebi found that this method was employed by the IA to collect money in addition to the advisory fee “because the general public may not know the consequence of the RCM clause on GST payment”.
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