Valentine's Day gift: Sebi does a sting operation to unmask unregistered investment advisor

It began with an email complaint against a website named www.commodityraja.com, which was said to be offering investment advice for a price. (Photo by Photon JPG:Pexels)

The market regulator caught the elusive proprietor of an unregistered investment advisory through a sting operation. It had its officials call the advisory as an interested client and got bank-account details that helped trace the proprietor's identity.

The proprietor — whose identity was revealed around Valentine's Day last year, on February 15, 2023 — has been asked to return the proceeds from the illegal activity this Valentine's Day.

In an order dated February 14, 2024, the SEBI asked Arjun Sharma to refund more than Rs 12.47 lakh collected as fee and pay a penalty of Rs 1 lakh. Sharma was found to be the proprietor of the unregistered advisory Commodity Raja.

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How it started

It began with an email complaint against a website named www.commodityraja.com, which was said to be offering investment advice for a price. That was in August 2022.

Sebi started an investigation and found that there was no intermediary registered with the regulator by the name of Commodity Raja and no company registered by that name with the Ministry of Corporate Affairs (MCA) either.

The regulator then sent a letter to the contact address given on the website but it was returned undelivered. It sent emails to the IDs provided and they went unanswered as well.

Sebi then reached out to the exchanges and asked for KYC related to the mobile numbers given on Commodity Raja's website, and the exchanges informed that there were no records found for the list of numbers. Sebi reached out to the depositories and hit a dead end there as well.

Finally, Sebi decided to do a sting operation.

An official called a number listed on the website as a prospective client and the person on the other end offered a package priced at Rs 6,599 for 15 days. The package included tips in gold mini or crude mini trade.

To make the payment for this package, the person gave bank account details, with the name of the account holder, the account number and the IFSC code.

It was a bank account with Axis Bank, which revealed the KYC details of this person on February 15, 2023. Finally, Sebi had the person it was trying to locate.

An address in Moradabad was also got with this exercise and Sebi sent letters to that address as well, and they went unanswered too.

With the PAN number attached to the bank account, Sebi tried to find out if there were other bank accounts or demant accounts that Sharma operated. The regulator's officials did not find any other account attached to Sharma's PAN.

The Axis Bank account, which was given to send in the advisory fee, was found to have been opened in October 2022. In it, credits were found to have been received primarily through UPI transactions. There were 266 credit transactions totalling Rs 12,47,848.

Since the account was linked to the phone number displayed on the website and used for collecting the advisory fee offered by Commodity Raja, the regulator construed that the amount received in the account was for providing investment advisory services.

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How it ended

In the order, taking the information provided on the website, and the facts revealed through the investigation, Sharma was found to be charging fee for investment advisory services without the necessary registration and in violation of the Investment Advisers Regulations.

Sharma has been asked to refund the fee and pay and penalty, and if he fails to comply within the stipulated time, the regulator will act to recover these amounts from him.

Meanwhile, Commodity Raja's proprietor has been barred from the securities market for a year.