MC Exclusive: Analyst faces scrutiny as his name is linked to violations similar to previous infractions

In December 2022, the market regulator had pulled up the analyst for similar violations. (Photo by Photon JPG: Pexels)

A research analyst has allegedly been promising clients daily investment returns ranging from 1-4 percent in exchange for a share of the profits—a practice that violates SEBI's rules barring guaranteed returns and profit sharing.

A link to a sub-domain of Dhokiyas.com, a website run by the analyst Chetan Dhokiya, has been circulating, where these terms of service are explicitly detailed. According to legal experts, these terms violate Sebi (Research Analysts) Regulations.

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Dhokiya, however, told Moneycontrol that his website and social media handles had been hacked. He registered a complaint with the Cyber Crime Police and intimated the market regulator about this. He said that the hacker created the sub-domain in question and that he has not been able to regain control over it.

However, an independent verification by Moneycontrol using the Sucuri SiteCheck scanner found no malware on his website. GoDaddy, the hosting service provider for Dhokiya's website, however, acknowledged a possibility of a breach but termed it "less likely".

In addition, the 'Join us now' tab on the sub-domain still directs people to Dhokiya's Whatsapp business account. Dhokiya, however, claimed that he could do little if a third-party link was sending traffic to his business account.

Complicating matters for Dhokiya, this isn't the first time his name has been linked to such violations. In December 2022, when he was a registered investment advisor (RIA or IA), he was pulled up by the market regulator for promising assured 3x returns on his website, Dalal Street. While the regulator did not find evidence that this promise induced clients, its enquiry order noted the need for Dhokiya to be "cautioned and warned against indulging in such practices." Dhokiya had been asked not to onboard new clients for six months for this and a few other violations.

What are the promises made?

In the current instance, the sub-domain says that the RA's option-selling strategies generate a daily profit of 1 percent to 4 percent of capital deployed.

The other details of this service are that these strategies, designed to take advantage of time decay in premiums, "minimise risk and maximise returns" and offer capital protection. The About Us section claims that their approach "minimises risk" and "generates consistent profits."

Under RA Regulations and guidelines, a registered entity cannot promise assured returns. Anand Kankani, a practising company secretary who advises RAs regularly, said that this is a violation of Master circular pg 19 (c) and pg 33 (ix).

The link also makes a "limited-time offer" for investors to only pay after profits are generated.

The website informs investors, "We collect only 10% of the profit made from stock tips as fees".

It adds, "No advance fees".

However, RAs are not allowed to make this profit-sharing arrangement.

Sonam Chandwani, managing partner at KS Legal & Associates, said, "They are not permitted to take payment through profit sharing under SEBI regulations. According to SEBI (Investment Advisers) Regulations, 2013, RAs are required to adhere to a fee structure that does not align their interests with the performance of their clients' investments to avoid potential conflicts of interest. Specifically, Regulation 15(3) prohibits RAs from charging fees based on the performance of a client's portfolio, which includes profit-sharing arrangements. This regulation is in place to ensure that RAs provide unbiased and objective advice without being influenced by the potential for higher earnings through increased client profits. Violating this regulation could lead to penalties, including suspension or cancellation of the RA's registration."

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What penalties can these violations attract?

Kankani said that, after considering the material available on record and the reply, if any, the designated authority may recommend various measures, including cancellation of the certificate of registration, suspension of the certificate of registration for a specified period; prohibition of the noticee from taking up any new assignment or contract or launching a new scheme for such the period as may be specified; and debarment of an officer of the noticee from being employed or associated with any registered intermediary or other person associated with the securities market for such period as may be specified. The officer could also issue a regulatory censure or dispose of the proceedings without any adverse action.