The capital market regulator Securities and Exchange Board of India (SEBI) has slapped Rs 40 lakh fine on an investment advisory firm for alleged regulatory violations.
The market regulator imposed heavy penalties on Madhya Pradesh based Raju Jhariya run Capital Vraddhi Financial Services for alleged non-compliance with the qualification requirement and fee structure, not entering into agreements with clients, non-maintenance of records, not carrying out risk profiling and suitability assessment, and providing free trials to clients.
SEBI had conducted a comprehensive inspection of Capital Vraddhi Financial Services during 19 April 2022 to 22 April 2022 and found that 36 employees providing investment advisory services lacked the necessary National Institute of Securities Markets (NISM) certifications.
While Capital Vraddhi Financial Services claimed that only Jhariya provided financial advice, the SEBI probe established 38 employees were involved in giving financial advisory, with only two holding valid certifications. The investment advisory firm also allowed 19 non-compliant employees to continue offering advisory services in violation of established regulatory and conduct standards.
The probe further exposed Capital Vraddhi Financial Service charged fees exceeding Rs1.25 lakh annually in 1,355 instances and charged fees from 29 clients without having signed agreements. The investment advisory provided services to five out of 40 clients without conducting know-your-customer (KYC), risk profiling, or suitability assessments and offered free trials to 116 clients, which violates SEBI regulations that prohibit such practices for prospective clients.
"The non-compliance on the part of Capital Vraddhi Financial Services and its proprietor clearly shows that it has failed in its fiduciary duties owed to its clients and attracts a penalty. It is also noted that the notice has defrauded the investors of securities market. This violation of the notice, if dealt with lightly could seriously undermine investors' confidence in the securities market and has to be viewed seriously and calls for appropriate penalty,” said SEBI order by adjudicating officer Barnali Mukherjee.
The employees of Capital Vraddhi Financial Services used personal phone numbers for pitching advisory services, posting fake reviews about Raju Jhariya through blogs, charging fees that exceed the investment amount, conducting faulty suitability assessments, guaranteeing profits, advising clients to trade without stop-loss, receiving fees before entering into any agreement with clients, and misrepresenting information to clients.
