The Securities and Exchange Board of India has accused an Indore, Madhya Pradesh-based Sebi-registered investment advisor (RIA) of violating various rules while dealing with clients. Praveen Verma, a Sebi RIA since August 2015 and hails from Indore's Vijay Nagar area, has also been charged with non-cooperation when investigators went to his address on March 16, 2020.
Verma’s case once again highlights the importance of assessing the RIA’s background for investors. While Verma may have been qualified for the job, he may have misused his position and misled clients for personal gain. He may have also committed a colossal blunder by hiring unqualified people for the job in his venture, resulting in financial losses for clients.
The regulator ordered a probe into his account books and other records under various provisions of the Sebi Act and RIA rules following investor complaints.
In November 2022, Sebi formally launched proceedings against Verma for various lapses, including failure to furnish information and cooperate with the inspection team, redress complaints received on Sebi’s Complaints Redress System (SCORES), promised assured and unrealistic returns to clients, and failure to act in a “fiduciary capacity” to clients.
Verma is also charged with hiring unqualified people for the job, failing to conduct clients' risk profiling, selling multiple products, charging unreasonable client fees, and publishing false claims on its website. The accused also failed to maintain records under the Sebi rules and collected GST from clients even after the cancellation of his GST number.
The proceedings come after several attempts to communicate with the accused at his address and through emails, newspaper ads, and calls from Sebi failed. Meanwhile, the accused continued to evade the investigators. The regulator said, "In the interest of natural justice, the Noticee was granted a hearing," but Verma rescheduled it several times, claiming he didn't receive its notices.
In a circular on Monday, the regulator said the RIA violated several laws under the Sebi Act, the Sebi (Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations, and Sebi circulars, prohibiting “manipulative and deceptive devices, insider trading, substantial acquisition of securities,” etc.
He will also be liable for a significant monetary penalty for failing to furnish proper documents, incomplete or false information on returns, account books, etc.
The rules also state that if the person is found to be involved in unfair trade practices relating to securities, he will be liable to a penalty of not less than Rs 5 lakh, which can go up to Rs 25 crore or three times the amount of profits made from such practices, whichever is higher.