Order – Stricker Stock Research

QJA/AS/WRO/WRO/23920/2022-23

BEFORE SECURITIES AND EXCHANGE BOARD OF INDIA

EXECUTIVE DIRECTOR, SHRI AMARJEET SINGH

FINAL ORDER UNDER SECTIONS 11(1), 11(4), 11(4A), 11B(1) AND 11B(2) READ WITH SECTIONS 15HA, 15HB (FOR VIOLATIONS PRIOR TO 08.03.2019), 15EB (FOR VIOLATIONS SUBSEQUENT TO 08.03.2019) AND 15I OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992, RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES) RULES, 1995, REGULATION 35 OF SEBI (INTERMEDIARIES) REGULATIONS, 2008 AND REGULATION 28 OF SEBI (INVESTMENT ADVISERS) REGULATIONS, 2013 

In respect of:    

In the matter of activities of Mr. Mukesh Vishwakarma, proprietor of Striker Stock Research as an Investment Adviser 

1. Securities and Exchange Board of India (“SEBI”) received multiple complaints on its SCORES platform against Mr. Mukesh Vishwakarma, proprietor of Striker Stock Research, a SEBI registered Investment Adviser (“IA”). Thereafter, SEBI conducted an examination of the complaints and noticed violations of provisions of SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”), SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”) and Securities and Exchange Board of India Act, 1992 (“SEBI Act”) by Mr. Mukesh Vishwakarma, proprietor of Striker Stock Research.

2. Pursuant to the examination, a show cause notice dated May 21, 2021 (“the SCN”) was issued by SEBI to Mr. Mukesh Vishwakarma, proprietor of Striker Stock Research (“the Noticee”) calling upon him to show cause as to why suitable directions under sections 11(1), 11(4) and 11B(1) of the SEBI Act read with regulation 35 of SEBI (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”) and regulation 28 of IA Regulations should not be issued against him, and why penalty under sections 11B(2) and 11(4A) read with sections 15HA, 15HB (for violations prior to March 8, 2019) and section 15EB (for violations subsequent to March 8, 2019) of SEBI Act read with rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 (“Penalty Rules”) should not be imposed on  the Noticee.

CONTENTS OF THE SCN AND THE ALLEGATIONS 

3. The SCN contained the following observations and allegations against the Noticee with regard to SEBI’s examination of his activities:

3.1 From February 8, 2018 to October 28, 2020, a total of 103 complaints were received against the Noticee in SCORES portal. Clients who paid fees of ₹3,50,000 and above during the period April 1, 2018 to March 31, 2020 including those who lodged complaints on SCORES (and were charged fee in excess of ₹3,50,000) were taken as sample for the purpose of further examination. 26 such clients were sampled for the said purpose.

3.2 The examination by SEBI was carried out on the basis of documents / evidences available in SCORES and submitted by the complainants. Further, documents such as Know Your Client (“KYC”) forms, Risk Profiling forms (“RPF”), client master, suitability policy, sample copy of risk assessment form, list of various products offered including products offered category-wise and details of bank accounts were also obtained from the Noticee through emails.

3.3 On the website of the Noticee (www.strikerstockresearch.com), details of 4 bank accounts were found viz., HDFC bank, ICICI bank, Axis bank and State Bank of India.

3.4 Vide email dated August 14, 2020, details of bank statements were sought from the aforesaid banks. Observations from bank statements are mentioned below:

3.5 The subsequent paragraphs bring out the allegations levelled against the Noticee in the SCN based on the examination of SEBI:—

Products meant for high risk bearing clients sold to medium risk bearing clients:

3.6 From the analysis of products / services offered to various categories of clients vis-à-vis their risk profile and the client master provided by the Noticee, it was observed that the Noticee sold his products / services meant for the clients categorized as ‘High Risk’ to clients having ‘Medium Risk’ appetite. Out of 26 sample clients, 17 were categorized under Medium Risk category. Out of those 17 clients, Noticee sold high risk category products to 14 clients. It is alleged that the act of selling products, meant for ‘High Risk’ clients, to ‘Medium Risk’ clients is deliberate on the part of the Noticee to somehow sell different products to clients in order to earn maximum fees from clients.

3.7 In view of above, it is alleged that Noticee has violated regulation 17(a), (c), (d) and (e), regulation 15(1) and clauses 1 and 2 of the Code of Conduct specified in Schedule III read with regulation 15(9) of IA Regulations.

Unfair and unreasonable amount of fees charged from Clients:

3.8 Out of the 26 sample clients, it was observed that for 17 clients, fees received was more than annual income of the clients, as disclosed in the respective RPF of the clients. The details of fees received were obtained from client master provided by the Noticee vide email dated August 24, 2020.

3.9 Further, it was also observed that for 20 clients, Noticee charged fees more than the proposed investment disclosed by clients in their RPF. The Noticee during the risk profiling of the clients had received all information from its clients like proposed investment amount, annual income and other financial details. Having known these financial details, the Noticee charged exorbitant amount of fees from its clients, which in certain cases has been more than eight times of the client’s annual income / proposed investment.

3.10 It is alleged that the Noticee deceived his clients by extorting fees which were more than the investment amount or total annual income of the client. It is also alleged that the Noticee did not act with due skill, care, diligence and honesty while charging advisory fees from the clients. Further, considering the fees charged from the client vis-à-vis the annual income and / or proposed investment by the client, it is alleged that fair and reasonable fees was not charged by the Noticee.

3.11 In view of the above, it is alleged that the Noticee failed to abide by clause 1, 2 and 6 of Code of Conduct for IA provided in Third Schedule read with regulation 15(9) of IA Regulations and also violated regulation 15(1) of IA Regulations.

3.12 Considering the modus operandi adopted by the Noticee, discussed hereinabove, it is also alleged that the Noticee was not practicing investment advisory in the manner envisaged under the IA Regulations, and was knowingly acting in a deceitful manner by:

a) selling products meant for high risk category clients to medium risk category clients.

b) charging fees from clients which are disproportionate to their annual income / proposed investment.

3.13. It is alleged that the above discussed non-genuine and deceptive “advisory” activities of the Noticee are, prima facie, fraudulent and are covered under the definition of “fraud” under Regulation 2(1)(c) of the PFUTP Regulations. As alleged, the Noticee, through his fraudulent acts/ schemes has violated the provisions of Section 12A(a), (b) and (c) of the SEBI Act and regulations 3 (a), (b), (c) and (d) of the PFUTP Regulations. 

Promise of assured / guaranteed unrealistic returns to its Clients:

3.14 Complaint of one Mr. Amit Kumar was received in SCORES wherein complainant had submitted copies of various emails sent by the Noticee. One such email read as under:

3.15 On the basis of the content of the email, it is alleged that the Noticee assured returns by mentioning assured profit with specified duration of 15-20 days [i.e. profit of 2,10,000 on an investment of 85,000].

3.16 Another person named Mr. Manish Vyas filed a complaint on SCORES whereby he submitted email received from the Noticee and call data records exchanged between him and executives of the Noticee. On the basis of the email / telephonic call record, it is alleged that executive of the Noticee assured profit of ₹ 3,50,000 through telephonic conversation and the same commitment was given by the Noticee through their email dated July 6, 2019.

3.17 One more person named Mr. Ratan Pandey complained on SCORES wherein he provided call data records exchanged between complainant and executives of the Noticee. In view thereof, it is alleged that executive of the Noticee without any basis, provided assurance of guaranteed returns in the market. Executive was providing assurance of committed profit of ₹5,50,000 and the service charges for the same would be of ₹1,00,000 to ₹1,50,000.

3.18 It is alleged that the Noticee induced its clients by promising them assured / expected unrealistic profits. Extracts of the call recordings of the complaints show that the complainants were given to understand that assured returns will be delivered by the Noticee. It is alleged that by making / promising assured / expected profits and unrealistic returns on investments regardless of the market segment or security in which the investment is made, Noticee has indulged in fraudulent practices knowing fully well that such promise is not only practically impossible but also not permissible under the law and would be misrepresenting the truth by deceiving the investors under the scheme or artifice. It is alleged that such representation is fraudulent and is covered within the definition of “fraud” as defined under regulation 2(1)(c) of PFUTP Regulations. Therefore, it is alleged that the Noticee had violated regulations 3(a), (b), (c), (d) of PFUTP Regulations read with sections 12A(a), (b) and (c) of SEBI Act. Further, the aforesaid act of the Noticee has also led to the alleged violation of regulation 15(1) of IA Regulations and clauses 1 and 2 of Code of Conduct for IA as specified in Schedule III read with regulation 15(9) of IA Regulations. 

Failure to redress client’s grievances:

3.19 One Mr. Shakeel Ahmed filed a complaint on SCORES and provided call data records exchanged between the complainant and executive of the Noticee. From the conversation it was observed that the client had subscribed to one of the services of the Noticee and had a complaint with regard to services on SCORES. The complaint was forwarded by SEBI to the Instead of resolving client’s grievance, the Noticee stopped providing services for which it charged fees from client and forced him to withdraw complaint from SCORES.

3.20 As per regulations 21(1) and 21(2) of IA Regulations, an investment adviser is required to redress client’s grievances promptly and should have adequate procedure for expeditious grievance redressal mechanism.

3.21 On basis of the above it is alleged that the Noticee failed to redress client’s grievances promptly in violation of regulation 21(1) and 21(2) of the IA Regulations.

Misrepresentation to clients:

3.22 A Complainant named Mr. Manish Vyas submitted various call records exchanged with Noticee’s representative. From the call records, it was observed that the executive of the Noticee provided wrong information to the client. For instance, Mr. Mukesh Vishvakarma is the sole proprietor of Striker Stock Research but instead of providing correct information to client, executive provided details of some other person called Aaryan thereby misleading client.

3.23 Another complainant Mr. Piyush Patel also submitted call records exchanged with the Noticee’s representative. From the conversation, it was noticed that the representatives of Noticee provided misinformation to clients. It is noted that the executive misled the client by saying that there are Board of Directors of Striker Stock Research, whereas, it is a proprietary firm and the Proprietor is Mukesh Vishvakarma. 

3.24 A person named Mr. Raman Kumar also filed a complaint along with call records exchanged with Noticee’s representative which revealed that the representatives of IA provided, inter-alia, following misinformation to its clients:

a) trading was done in US Dollars and conversion is required into Indian currency;

b) profit is credited into escrow account and then transferred to the client’s savings account;

c) demat is dabba demat;

d) a security code is generated and client has to pay the amount generated through the security code.

3.25 Complainant Mr. Raman Kumar had provided 8 call data records. After hearing all the 8 calls recordings, it is observed that, the client was lured to pay ₹ 4,67,825 (As per client master and invoices provided by the Noticee) by promising more and more returns from the market. Noticee charged client various types of fees fraudulently like file settlement fees, currency convertible fees, security code generation charges, etc. The client was again and again forced to pay the amount by showing fictitious profits. It was also noted from the conversation that Noticee kept charging amount from client in the name of investment and fees and client kept paying to the Noticee thinking that the Noticee is doing investment on his behalf but the Noticee under the garb of providing investment advice received a total of ₹ 4,67,825. 

3.26 The Noticee provided wrong information to the clients and misrepresented in order to sell his services to client. By indulging in the above act, the Noticee failed to abide by Clauses 1 and 2 of Code of Conduct for Investment Advisers as specified in Schedule III of IA Regulations read with Regulation 15(9) of IA Regulations.

3.27 It is also alleged that the Noticee (through its employees / representatives) misrepresented the client regarding its proprietor and its legal status. Further, it is alleged that the Noticee has committed fraud with the client by receiving fees in the name of investment. The above act on the part of the Noticee come under the definition of ‘fraud’ as defined in Regulation 2(1)(c) of PFUTP Regulations. On account of the above, it is alleged that the Noticee has violated Regulation 3(a),(b),(c) and (d) of PFUTP Regulations read with section 12(A)(a),(b) and (c) of SEBI Act. 

Noticee handled client’s demat account:

3.28 A complainant Mr. Krishna Madhaw lodged SCORES complainant and provided various call data records of communication that took place between the executive of the Noticee and the complainant.

3.29 It was observed from the said call data records that Noticee’s executive was asking for reset of client password which had expired. Further, the executive also asked the client to deposit money in his demat account and was given a commitment that the rest of the things would be taken care of by Striker Stock Research. As per the terms and conditions provided in Annexure A of the SEBI circular no. SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020, Investment Adviser shall not manage funds and securities on behalf of the client and that it shall only receive such sums of monies from the client as are necessary to discharge the client’s liability towards fees owed to the Investment Adviser. From the above, it is alleged that Noticee was involved in managing funds of its clients and thereby violated aforesaid provision of the SEBI circular dated September 23, 2020. 

Noticee received fees from clients before starting of its services:

3.30 The details of invoices issued to clients were sought from the Noticee for the sample clients. The invoices contained the information with regard to date of invoice, period for which the service was subscribed, amount charged for the services, etc. From the analysis of said invoices, it was observed that the fees from the clients was received much before the start of the service period. 

3.31 It was observed that Noticee was collecting fees from its clients before start of its service—such difference ranging from 309 days to 61 days. Out of 26 sample clients, in case of 11 clients, Noticee charged fees much prior to start of its services. Amount of advance fees charged from clients ranged from ₹ 3,000 per client to ₹ 3,32,500 per client.

3.32 It is alleged that the said act of receiving fee from clients before start of services is not fair and in the best interests of the clients and the Noticee by indulging in the said act, failed to abide by Clauses 1 and 6 of Code of Conduct for Investment Advisers as specified in Schedule III of IA Regulations read with Regulation 15(9) of IA Regulations.

4. In light of the above, the Noticee was called upon to show cause as to—

(i) why suitable directions, including the following, under sections 11B(1) and 11(4) read with section 11(1) of the SEBI Act, should not be issued against them: 

a) to cease and desist from acting as an investment advisor including the activity of acting and representing through any media (physical or digital) as an investment advisor, directly or indirectly, and cease to solicit or undertake such activity or any other activities in the securities market, directly or indirectly, in any matter whatsoever;

b) not to access the securities market and buy, sell or otherwise deal in securities or associates themselves with securities market, in any manner whatsoever whether directly or indirectly;

c) to immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, communications etc., in digital mode or otherwise, in relation to its investment advisory activity or any other activity in the securities market;

d) to refund the amount of ₹ 7,53,94,971/- received from the clients/investors/complainant on or after April 1, 2018, as fees or consideration or in any other form in respect to the investment advisory activities; and

(ii) why suitable directions for imposing penalty under sections 11B(2) and 11(4A) read with sections 15HA and 15HB (for violations prior to March 8, 2019) and section 15EB (for violations subsequent to March 8, 2019) of SEBI Act read with regulation 35 of Intermediaries Regulations read with regulation 28 of IA Regulations and Penalty Rules should not be issued against the Noticee for the aforesaid violations.

SERVICE OF SCN AND REPLY OF THE NOTICEE:

5. I note that SCN in the said matter was delivered to the Noticee on his address / email available on record. The Noticee submitted his reply to the same vide letter dated June 22, 2022, inter alia, submitting as follows:– 

W.r.t. allegation—“Products meant for high risk bearing clients sold tomedium risk bearing clients”

5.1. I would like to draw SEBI’s attention towards Welcome Note, which was being shared to every client while onboarding them wherein clients are made very well aware about the risks involved and clients used to revert on the said mail by agreeing onto them. Further, after the client onboarding procedure, some clients do approach and ask for high risk products, wherein they state that they are competent enough to bear the high-risk products and want to trade in such segments to earn high returns. However, as a prudent SEBI registered Investment Adviser, I do take their consent over e-mail for providing high risk services. I have in no manner forced any of my client to subscribe to a certain service/ package. Client by themselves seek for such services and give their consent for the same.

5.2. Furthermore, none of these clients have filed complaint/ grievance related to this matter, which does prove the fact that they were not forced or deceived or mislead in any manner and also, they were fully satisfied with the services. Hence, I didn’t violate the Regulators as clients were able to bear any investment related risks and didn’t commit any fraudulent activity as I didn’t conceal any facts from the clients.

5.3. Further, prior to the applicability of the SEBI Circular dated 23^rd September, 2020, I had started obtaining client’s consent over the risk profiling. 

W.r.t. allegation—“Unfair and unreasonable amount of fees charged from clients”

5.4. Clients don’t fill their correct income details or they don’t feel safe to disclose their correct income due to personal/ taxation reasons. Further, clients were made aware that he/she needs to fill all the correct information, as filing the false information will lead  to carrying out wrong risk profiling and the client will be held liable for the same.

5.5. Since clients are able to pay high fees which validates that client’s annual income and their proposed investment amount is much higher than mentioned. The clients have paid fees with their own will and consent. They were neither forced nor were deceived in any manner whatsoever. Further, if client does not disclose correct details/ information in Risk Profile, then Investment Adviser shall not be held liable.

5.6. In many instances, clients do confirm over the telephone call that they have more annual income than which is stated in Risk Profile; however, if we get the client filled another revised Risk Profile then it will lead to multiple risk profiles, which will indeed violate the SEBI Regulations.

5.7. Furthermore, clients do increase their investment amount once they start earning profits. I would also like to state a matter of fact that no investor/ trader will ever pay higher amount of fee than their investment or their annual income.

5.8. No exorbitant fees were charged from clients, they were capable to pay high fees, then only they have paid, if they wouldn’t be capable enough then they won’t have paid such high fees.

5.9. Further, prior to 1^st April, 2021 there was no limit or restrictions or cap on quantum of fees to be charged from the clients. 

W.r.t. allegation—“Noticee promised assured/guaranteed unrealistic returnsto its clients”

5.10. With regard to the email copies of Mr. Amit Kumar and Mr. Manish Vyas, I would like to request SEBI to check the said copies of email thoroughly, as one can easily identify that the said emails to the clients were not sent by the Striker Stock Research official email ids. The said emails were being sent to the clients by some unauthorized personal email id of an employee.

5.11. Further, on our Website, it is clearly mentioned that “We do not provide any guaranteed returns”. Furthermore, in our Welcome Mail, which is sent to every client while onboarding him/her, this line is mentioned in legible font: “Stock market has inherent market risk, hence we do not claim any profit guaranteed services”. “Striker Stock Research Investment Adviser do not provide profit sharing services, guaranteed service and services which are not mentioned in our website, if any person tries to sell such type of product kindly call on customer care number.’

5.12. Further, I do admit the fact that the proprietor has the liability of the conduct of its employees, hence, the mail sent by an unauthorized email id which contained assured returns was not legitimate and as a result I being a genuine Investment Adviser have refunded the clients the amount of service fee paid by them. 

5.13. Furthermore, full refund of service amount was provided to Mr. Ratan Pandey, and the employee who was involved in this activity, was expelled with immediate effect.

5.14. In the Welcome Mail shared with the clients, this is also being mentioned: “Striker Stock Research Investment Adviser uses only following email-id to communicate with its clients, which is as follows [email protected], We do not communicate to our clients except these mentioned email-ids, In case you receive any mail other than the abovementioned email-id please do inform us and don’t consider such mails from Striker Stock Research Investment Adviser”.

5.15. However, barring these couple of matters the same has not happened and even it happened without my knowledge and I took the corrective action as soon as it came to my knowledge. Further, I did act in the best interests of the client as soon as I got aware of the situation, and refunded him the full amount. 

W.r.t. allegation—“Failure to redress client’s grievances”

5.16. The transcript has been wrongly interpreted by SEBI since the client having some grievance before filing the complaint. If he was not satisfied with the services, then how one can continue to provide further services to him as his complaint resolution was under process.

5.17. A person who is already dissatisfied with the services, cannot seek further services as the same would make no sense. Hence, client was asked that if he is satisfied with our services and wants to continue his services then he can withdraw his complaint filed on the SCORES Portal. Further, client’s complaint was resolved with proper satisfaction. 

5.18. I have not violated Regulation 21 of the IA Regulations, as I have always resolved all my clients’ grievances in a timely manner and provided the best resolution as possible. Further, I do also have an adequate procedure for client’s grievance redressal mechanism. 

W.r.t. allegation—“Misrepresentation to clients”

5.19. They were not my representatives and were not representing me in any way. I am the only person engaged in providing investment advisory services. They were just my employees engaged in lead generation. Hence, the term “representative” used here by the SEBI is totally incorrect. 

5.20. I being the Investment Adviser was involved in assessing the risk profiling of the clients, conducting the research, and providing the recommendations. Further, all my requisite registration details as per the SEBI Circular are being mentioned on the website, clients are in no manner being misrepresented in any way. 

5.21. Furthermore, the clients Mr. Manish Vyas, Mr. Piyush Patel and Mr. Raman Kumar were provided refund of their amount. 

5.22. I have not misrepresented any of my clients, the said acts were done by an employee who was expelled with immediate effect as soon as I became aware that he has misrepresented with the client. I did take the corrective measure and further full amount was refunded to client. I being a prudent Investment Adviser, won’t accept fees from clients wherein they are being misguided. As mentioned, for me client supremacy is the utmost priority. The said act has not been repeated thereafter.

W.r.t. allegation—“Noticee handled client’s demat account”

5.23. SEBI has again misinterpreted the transcript. The employee was just assisting the client in resetting his demat account password as the client was unable to do it by his own. Further, in the end the employee meant that you just invest your money in demat account and if you will face any difficulties then I will guide you. The employee has never punched any trade on the client’s behalf. Further, we were not involved in managing the funds or securities on behalf of the clients, rather we had just offered/ provided execution and implementation services to this client free of cost.

W.r.t. allegation—“Noticee received fees from the clients before starting of itsservices”

5.24. In all such cases, client’s other service was running at that point of time, and starting another service simultaneously would not be in the best interest of the client as he would not have been able to take benefit of it. Further, there is nothing wrong in taking an advance payment for services as the client gets discount if they opt for a service in advance. Further, such fees are charged after proper consent from the client.

5.25. The said practice is adopted by every service industry and it is absolutely fair and reasonable, there is nothing wrong in it. 

5.26. It would have been unfair if the services were not provided to the clients when it was due. However, the services were delivered properly to the clients and clients were also agreed for the same.

5.27. Further, SEBI has come up with the Circular on 23^rd September, 2020 regarding restrictions for advance payment for more than 2 quarters, prior to that there were no limitations for advance payment. The thing which SEBI itself has not mandated to follow earlier, then why they are stating that it is incorrect. Presently the same rule is being followed by us as we.do not take advance payment for more than 6 months service.

 Other submissions 

5.28. Just 3 complaints have been received against me in the past one year on the SEBI SCORES Portal which have been duly resolved timely.

5.29. I have refunded the service amount to the clients who were dissatisfied with our services and even to whom who have faced losses by following my recommendations. No one would ever refund the service amount to its clients if he has any fraudulent intentions. Hence, it does make clear that I was not having any fraudulent intentions and have not violated any provisions of PFUTP Regulations.

5.30. The total number of complaints received on SCORES Portal stands out to 103, out of which only 80 are unique complaints till date from the date of Registration i.e. in the span of 56 months wherein I have served thousands of clients, hence the proportion of dissatisfied clients is much lower than that of satisfied clients. It is a matter of fact that clients do file the complaint even if they suffer a small loss for which the Investment Advisers are not liable, but then too I have resolved all of my clients’ grievances and have refunded to majority of them.

5.31. Further, I would also like to inform Hon’ble SEBI that parallel proceedings are being initiated against me. It is therefore prayed that Hon’ble SEBI may be pleased to not to take any action in this matter. This Hon’ble SEBI may be pleased to issue just a warning to me in respect of few non-compliances observed by me;

PROVISIONS OF LAW ALLEGED TO HAVE BEEN VIOLATED BY THE NOTICEE: 

6. The relevant provisions of the IA Regulations, PFUTP Regulations and the SEBI Act allegedly violated by the Noticee are reproduced hereunder:

IA REGULATIONS:

Consideration of application and eligibility criteria. 

6. For the purpose of the grant of certificate the Board shall take into account all matters which are relevant to the grant of certificate of registration and in particular the following, namely, —

(f) whether the applicant, its partners, principal officer and persons associated with investment advice, if any, are fit and proper persons based on the criteria as specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008;

General responsibility.  

15. (1) An investment adviser shall act in a fiduciary capacity towards its clients and shall disclose all conflicts of interests as and when they arise.

(9) An investment adviser shall abide by Code of Conduct as specified in Third Schedule.

Risk profiling.  

16. Investment adviser shall ensure that,-

(b) it has a process for assessing the risk a client is willing and able to take, including:

• assessing a client’s capacity for absorbing loss;
• identifying whether client is unwilling or unable to accept the risk of loss of capital;
• appropriately interpreting client responses to questions and not attributing inappropriate weight to certain answers.

(d) any questions or description in any questionnaires used to establish the risk a client is willing and able to take are fair, clear and not misleading, and should ensure that: 

• questionnaire is not vague or use double negatives or in a complex language that the client may not understand;
• questionnaire is not structured in a way that it contains leading questions.

Suitability.  

17. Investment adviser shall ensure that,-

(a) All investments on which investment advice is provided is appropriate to the risk profile of the client; 

• It understands the nature and risks of products or assets selected for clients;
• It has a reasonable basis for believing that a recommendation or transaction entered into:
  • meets the client’s investment objectives;
  • is such that the client is able to bear any related investment risks consistent with its investment objectives and risk tolerance;
  • is such that the client has the necessary experience and knowledge to understand the risks involved in the transaction.

(e) Whenever a recommendation is given to a client to purchase of a particular complex financial product, such recommendation or advice is based upon a reasonable assessment that the structure and risk reward profile of financial product is consistent with clients experience, knowledge, investment objectives, risk appetite and capacity for absorbing loss. 

Redressal of client grievances.

21. (1) An investment adviser shall redress client grievances promptly.

(2) An investment adviser shall have adequate procedure for expeditious grievance redressal.

Client level segregation of advisory and distribution activities.

22. (1) An individual investment adviser shall not provide distribution services.

Liability for action in case of default.  

28. An investment adviser who –

(a) contravenes any of the provisions of the Act or any regulations or circulars issued thereunder; 

shall be dealt with in the manner provided under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

THIRD SCHEDULE

Securities and Exchange Board of India (Investment Advisers) Regulations,

2013

[See sub-regulation (9) of regulation 15]

CODE OF CONDUCT FOR INVESTMENT ADVISER

1. Honesty and fairness

An investment adviser shall act honestly, fairly and in the best interests of its clients and in the integrity of the market. 

2. Diligence

An investment adviser shall act with due skill, care and diligence in the best interests of its clients and shall ensure that its advice is offered after thorough analysis and taking into account available alternatives.

6. Fair and reasonable charges

An investment adviser advising a client may charge fees, subject to any ceiling as may be specified by the Board. The investment adviser shall ensure that fees charged to the clients is fair and reasonable. 

PFUTP REGULATIONS:

3. Prohibition of certain dealings in securities No person shall directly or indirectly—

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under;

(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d)  engage in any act, practice, course of business which operates or would operate as fraud  or  deceit  upon  any  person  in  connection  with  any  dealing  in  or  issue  of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

SEBI ACT:

Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.

12A. No person shall directly or indirectly—

(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;

(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange;

(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;

PERSONAL HEARING AND ADDITIONAL QUERIES: 

7. The Noticee was granted an opportunity of personal hearing on September 27, 2022 when his authorized representative appeared and made submissions on behalf of the Noticee. During the hearing, the authorized representative on behalf of the Noticee was asked to submit the Noticee’s response on the following queries:

a) Data in respect of investor grievance redressal, irrespective of whether the complaints were received through SCORES or in physical form / e-mail.

b) Details of NISM certifications held by the proprietor and his employees.

c) Details of any fee collected from the clients who, as per Noticee’s admission, were misrepresented by the employees of the Noticee.

d) Details of employees over a period of 5 years with a break-up of how many joined, how many left and how many were fired by the Noticee.

e) Details of volume of transactions over past 5 years. What has been the annual fee and how many clients have been served by the Noticee.

f) Provide details of the clients mentioned in the SCN as regards the actual investment done by them, and how the fee is computed by the Noticee based on such investments

g) For all the clients provide the consent letter / form taken from them.

h) Provide GST returns and invoices raised from the complainants mentioned in the SCN.

8. The Noticee submitted his response to the aforesaid queries vide email dated October 25, 2022. The following is relevant to be mentioned in relation to the response submitted by the Noticee:

8.1 As regards the fee collected from the clients, who admittedly were misrepresented by Noticee’s employees, the following details were submitted:

8.2 With regard to the details of employees, the Noticee furnished only partial details as it did not provide the date of joining and leaving of the employees and their contact details. The Noticee only provided the names of employees with left, fired, etc. mentioned against them.

8.3 As regards the volume over a period of 5 years and the number of clients, the Noticee submitted the following:

8.4 As regards the actual investment done by the 27 clients mentioned in the SCN and how the fee was computed for them, the Noticee did not provide any clear rationale and only provided “intra-day limit of 10 to 20 times” of the “proposed investment” as the basis for selling packages and levying fees from the clients for the same.

CONSIDERATION AND FINDINGS:

9. I have perused and carefully considered the allegations levelled against the Noticee in the SCN and his submissions in response thereto along with the annexures, and also the information /documents submitted by him in response to the queries put to his authorized representative during the personal hearing held on September 27, 2022. 

10. I shall now deal with the specific allegations levelled in the SCN and the response of the Noticee in that regard.

Products meant for High Risk Bearing Clients Sold to Medium Risk Bearing clients:

11. It has been alleged in the SCN that the Noticee had sold the products meant for High Risk Bearing Clients to Medium Risk Bearing clients. In response thereto, the Noticee submitted that a “Welcome Note” was being shared with every client while onboarding them whereby clients were made aware about the risks involved and the clients used to revert on the said mail by agreeing to them. The Noticee has further submitted that after onboarding, some clients approach and ask for high risk products, stating that they are competent enough to bear the high-risk products and want to trade in such segments to earn high returns. Further, the Noticee argued that it obtained their consent over e-mail for providing high risk services and they were not forced in any manner.

12. In this regard, I note that as per regulation 16 of the IA Regulations, identification of the risk appetite / tolerance of the client is essential before the IA renders any advice to the client. In terms of regulation 16(b), the IA is required to have a process for assessing appetite, which in turn entails, inter alia, assessing a client’s capacity for absorbing loss and his willingness to accept the risk of loss of capital. Further, regulation 17(e) of the IA Regulations also requires the IA to ensure that whenever a recommendation is given to a client to purchase of a particular complex financial product, such recommendation or advice is based upon a reasonable assessment that the structure and risk reward profile of financial product is consistent with clients experience, knowledge, investment objectives, risk appetite and capacity for absorbing loss. Thus, risk profiling is a function not only of the willingness of the clients, but also of his capacity to absorb loss.

13. As submitted by the Noticee, he had a structured process in place to carry out the risk profiling of clients, which led to identification of the clients as medium risk bearing or high risk bearing. It is noted from the welcome note sent by the Noticee to clients that for ascertaining the risk profile of a client, the Noticee inter alia considered age, investment objective, horizon of investment, income details, existing investment / assets, risk appetite / tolerance and liability, browning details, etc. Accordingly, for the sake of argument, even if it is accepted that the clients expressed their willingness to opt for high risk products, the Noticee could not have modified their risk profile from medium risk bearing to high risk bearing unless the risk absorbing capacity of the clients had changed. Change in risk absorbing capacity could have been recorded with the support of documents evincing increased income and assets details of the clients, but the same was not done by the Noticee in the instant case. For the above reasons, I am unable to accept the submissions of the Noticee in this regard.

14. Further, in relation to the said allegation of selling of products meant for High Risk Bearing Clients to Medium Risk Bearing clients, I find it important to mention that the Noticee, while designing products for client based on their risk-bearing ability, was offering only 5 products to “Medium risk-bearing clients” as opposed to 23 products which were being offered to “High-risk bearing clients”. The table below bring out the relevant particulars: –

15. This skewed categorization in itself is indicative of the strategy of the Noticee to lure all clients into subscribing for High-risk products regardless of their risk-bearing capacity or income. As brought out in the SCN, out of 26 sample clients, 17 sample clients were categorized under Medium Risk category and out of those 17 clients, Noticee sold high risk category products to 14 clients. The Noticee has not disputed the above fact and has instead laid emphasis on the fact that consent of all the clients was taken while selling these high-risk products to the clients. In this context, it is pertinent to reiterate that risk profiling is a function not only of the willingness of the clients, but also of their capacity to absorb loss. Therefore, selling of high-risk products to medium risk-bearing clients without there being any upward change in the financial status of the clients can only be attributed to fee maximization on part of the Noticee and cannot be said to be in line with the investment advisory as envisaged udder the IA Regulations. 

Unfair and unreasonable Amount of Fees Charged from Clients:

16. It has been alleged in the SCN that the Noticee charged unreasonable fee from the clients which in many cases exceeded the annual income and the proposed income of the client recorded in his risk profiling form. In response thereto, the Noticee has submitted that clients do not fill their correct income details as they do not feel safe to disclose their correct income due to personal/ taxation reasons. The Noticee has further argued that the clients were made aware that he/she needs to fill all the correct information, as filing false information will lead to carrying out wrong risk profiling and the client will be held liable for the same. The Noticee has also argued that when clients are able to pay high fees, it validates that clients’ annual income and proposed investment amount is much higher than mentioned. In this context, it is relevant to highlight that SEBI’s examination had revealed that out of the 26 sample clients, fees received from 17 clients was more than their annual income disclosed in their respective RPF. Further, out of the said 26 sample clients, it was also observed that for 20 clients, Noticee charged fees in excess of their proposed investment disclosed in their respective RPF. The tables below contain the relevant details collated from the client master provided by the Noticee, RPF, etc.—

 DETAILS OF CLIENTS WHERE FEE CHARGED IS MORE THAN THE ANNUAL INCOME OF THE CLIENT AND THE PROPOSED INVESTMENT 

 DETAILS OF CLIENTS (INCLUDING THOSE MENTIONED IN THE TABLE ABOVE) WHERE FEE CHARGED IS MORE THAN THE PROPOSED INVESTMENT

17. In this regard, as noted earlier, risk profile of a client is also a function of his capacity to absorb loss which can be determined by his income details and proposed investment. While the client fills the income details in the form provided by the IA, it becomes the duty of a prudent IA to verify the same with supporting documents such as Income Tax returns, bank statements, etc. Risk profiling process as envisaged under regulation 16 of the IA Regulations cannot be said to be complete unless the IA verifies the details filled in by the clients. The entire purpose of risk profiling and suitability of products to the clients as detailed in regulations 16 and 17 of the IA Regulations will be lost if the IA seeks to shift the responsibility to the clients without carrying out any exercise of verification at his end.

18. The submission of the Noticee that the clients do not submit their correct income details for taxation purposes lacks merit since the information filled in the risk profiling form with an IA has no connection whatsoever with the income tax / other taxes to be paid by an individual.

19. Referring to the submission made by the Noticee that the client itself wanted to invest more than the annual income or the proposed investment, the kosher action on part of the Noticee would have been to record the revised risk profiling form of the clients based on their increased income / additional income and the revised investment proposal. In this connection, the Noticee has contended that if I get the client to fill another revised Risk Profile then it will lead to multiple risk profiles, which will indeed violate the SEBI Regulations. This understanding of the Noticee in my view is incorrect since filling a revised risk profile by a client would replace his old risk profile (similar to Know Your Customer ‘KYC’ updation) and therefore there will be no question of multiple profiles and violation of IA Regulations on account of the same.

20. In this context, the Noticee has also submitted that prior to 2021, there was no limit or restriction or cap on quantum of fees to be charged from the clients. In this regard, I note that the Code of Conduct for IA under the IA Regulations, even prior to the amendment, had the requirement that the investment adviser shall ensure that fees charged to the clients is fair and reasonable. With regard to “reasonableness” of the fee charged, I note that the IA Regulations always provided for principle based determination of fee to be charged by the investment adviser. What is reasonable in a particular circumstance may be the outcome of various factors which are relevant for such determination. As discussed earlier, when the Noticee charged fee which was much more than the annual income of the client and in several multiples of the proposed investment of the clients, such charging of fee cannot in any manner be viewed as fair and reasonable. In view of the above, I am unable to agree with the submissions of the Noticee in this regard.

 Noticee promised assured/guaranteed unrealistic returns to its clients:

21. To discuss the allegation in context, I find it relevant to mention the contents of the emails and telephonic conversations between the clients and the executives of the Noticee (noted in English or Hindi written in Latin script).

i. Excerpt of e-mail sent to complainant—Mr. Amit Kumar

Summary: Vide the above email the Noticee’s executive assured returns by mentioning assured profit (profit of ₹ 2,10,000 on an investment of ₹85,000) with specified duration of 15-20 days

ii. Excerpt of e-mail sent to complainant—Mr. Manish Vyas

iii. Excerpts of telephonic conversation between Noticee’s executive and complainant—Mr. Manish Vyas

Summary: The executive of the Noticee assured profit of ₹ 3,50,000 through telephonic conversation and the same commitment was given by the Noticee through their email dated July 6, 2019.

iv. Excerpts of telephonic conversation between Noticee’s executive and complainant— Mr. Ratan Pandey

Summary: Executive was providing assurance of committed profit of ₹ 5,50,000 and the service charges for the same shall be of ₹ 1,00,000 to ₹ 1,50,000.

22. In relation to the allegation of promising assured / guaranteed returns, the Noticee drawing specific reference to the email copies of Mr. Amit Kumar and Mr. Manish Vyas (mentioned in the SCN), has submitted that the said emails to the clients were not sent from the official email IDs of the Noticee, and rather, were being sent from some unauthorized personal email id of an employee. The Noticee has further submitted that on his Website, it is clearly mentioned that “We do not provide any guaranteed returns”. Further, in his Welcome Mail, sent to every client while onboarding, this line is mentioned in legible font: “… Striker Stock Research

Investment Adviser do not provide any profit sharing services, guaranteed service and services which are not mentioned in our website, if any person tries to sell such type of product kindly call on customer care number”; “Striker Stock Research Investment Adviser uses only following email-id to communicate with its clients, which is as follows [email protected], … In case you receive any mail other than the abovementioned email-id please do inform us and don’t consider such mails from Striker Stock Research Investment Adviser”. The Noticee has also contended that the proprietor does not have the liability of the conduct of his employees, and hence, the mail sent from an unauthorized email id, which contained assured returns was not legitimate. Further, the Noticee has refunded the clients the amount of service fee paid by them. In relation to the complaint of Mr. Ratan Pandey (mentioned in the SCN), the Noticee stated that the employee who was involved in this activity, was expelled with immediate effect.

23. In relation to the above submissions of the Noticee on the allegation of promising assured returns, I find it relevant to note that the Noticee has not disputed the fact that the complainants namely, Amit Kumar, Manish Vyas and Ratan Pandey were his clients and that they had made payments to the Noticee towards subscription of his services. It is an undisputed fact that the said clients had made the payments to the Noticee’s bank account(s) and not to any other bank account(s) regardless of the email / telephonic communications noted above and brought out in the SCN. The Noticee has also not denied that the employees who had sent the mails to the complainants were his employees.

24. It does not appeal to reason that an employee of the Noticee, who wished to misuse the Noticee’s brand name and used fake email IDs to promise assured returns to clients, would ask the clients to make payments to the accounts of the Noticee and not to any third party accounts. The Noticee has not disputed the fact that the complainants named above had made the payments to his bank accounts. This is also corroborated from the Noticee’s submission that he had refunded the amounts received from the clients. Further, the Noticee has also not denied the fact that the mails were sent by his employees which is exhibited from his submission that as a corrective action he had removed the employees who were responsible for the conduct discussed above. The fact that the Noticee was the beneficiary of all the payments received from the complainants (being influenced by the assurances made by the Noticee’s employees through so-called fake email IDs) is indicative of a well-designed strategy of the Noticee to lure clients by making false assurances using look alike e-mail IDs such as [email protected], [email protected], etc., which is clearly evident from the fact that all the clients who fell prey to such assurances made payments to the Noticee only and not to anyone else.

25. The Noticee has also submitted that he should not be held responsible for the misconduct of his employees, in particular, use of fake email IDs to make false assurances to clients. In this regard, I note that it is not the claim of the Noticee that the persons who sent the e-mails (recorded in the SCN) were not his employees. It is a settled law that an employer being the “principal” of the employee (i.e. the “agent”) is vicariously liable for all acts of his employee which are done within the scope of his work. Looking at the facts of the present case, the employees sent the email / indulged in telephonic conversation with the clients on behalf of the Noticee, the clients subscribed to the services offered by the Noticee and the payment was also received in the bank accounts of the Noticee. These facts clearly evidence that the employees were acting as per the scope of work assigned to them by the Noticee and not without Noticee’s knowledge, which could have been the case, had the payments been received by the employees in some bank account other than that of the Noticee. In light of these facts, the Noticee cannot shrug off the responsibility, which the law entrusts on to him being the employer / principal for the acts of his employees / agents.

Failure to redress client’s grievances:

26. It has been alleged in the SCN (drawing reference to a complaint filed by one Mr. Shakeel Ahmed) that instead of resolving the complaint, the Noticee stopped providing services to client and forced him to withdraw the complaint from SCORES.

The conversation exchanged between the complainant and the Noticee’s representative as recorded in the SCN is as under:

27. In response to the above allegation, the Noticee has submitted that the transcript has been wrongly interpreted by SEBI since a person who is already dissatisfied with the services, cannot seek further services as the same would make no sense, and therefore the client was asked that if he is satisfied with our services and wants to continue his services then he can withdraw his complaint filed on the SCORES Portal. In this regard, I note that the Noticee has not disputed the contents of the conversation as recorded in the SCN.

28. On a perusal of the said text (in Hindi noted in Latin script), the tenor of the words appear to be pushing the client to withdraw his complaint filed on SCORES by making the further provision of services contingent to withdrawal of complaint. Going by the understanding of the nature of the services being offered by the Noticee, the client subscribes to a service for a definite period of time, and the continuation of that service for the entire period is the commitment of the Noticee. Thus, if the client was dissatisfied with one product or the tips provided on one day of the aforesaid definite period, then the IA is still obliged to provide the services during the remainder duration of the validity of the subscription taken by the client. The conduct of the Noticee in forcing the complainant to withdraw the complaint, exhibited that the Noticee had no intention of resolving the complaint and wanted to close it showing as ‘withdrawn’. Thus, I am unable to accept the submission that SEBI has misinterpreted the transcript of the conversation.

Misrepresentation to clients:

29. It has been alleged in the SCN that the Noticee’s representatives had misrepresented the clients by giving them false information, inter alia, about the name of the owner, composition of the management of Striker Stock Research, trading being done in dollars, conversion of dollars to Indian Rupees, demat account being a dabba account, etc. The following extracts of communications exchanged between the Noticee’s representatives and the client bring out the nature of misrepresentation.  

(i) Extracts of Telephonic conversation between Noticee’s executive and Complainant named Mr. Manish Vyas: 

Summary: The executive of the Noticee provided wrong information to the client by telling that the owner of Striker Stock Research is a person named Aaryan, whereas, the Noticee Mukesh Vishvakarma is the sole proprietor of Striker Stock Research. 

(ii) Extracts of Telephonic conversation between Noticee’s executive and Complainant named Mr. Piyush Patel :

Summary: The executive of Striker Stock Research provided wrong information to client by telling that there are Board of Directors of Striker Stock Research, whereas Striker Stock Research is a proprietary firm and the Proprietor is Mukesh Vishvakarma. 

(iii) Extracts of Telephonic conversation between Noticee’s executive and Complainant named Mr. Raman Kumar

Summary: From the conversation, it was noticed that the representatives of IA assured profits and pushed the client hard to arrange funds for earning such profits and provided, inter-alia, following misinformation to its clients: 

• trading was done in US Dollars and conversion is required into Indian currency;
• profit is credited into escrow account and then transferred to the client’s savings account;
• demat is dabba demat;
• a security code is generated and client has to pay the amount generated through the security code.

(iv) As recorded in the SCN from the 8 calls recordings submitted by Mr. Raman Kumar, it was observed that client was lured to pay ₹ 4,67,825 (As per client master and invoices provided by Striker Stock Research) by promising more and more returns from the market. The Noticee charged client various types of fees like file settlement fees, currency convertible fees, security code generation charges, etc. It was also noted from the conversation that Noticee kept charging amount from client in the name of investment and fees and client kept paying to the Noticee thinking that the Noticee is doing investment on his behalf but the Noticee under the garb of providing investment advice received a total of ₹ 4,67,825. 

30. Regarding the misrepresentation made by the employees of the Noticee, the authorised representative during the personal hearing admitted the allegation and further stated that the concerned employees who had misrepresented were expelled by the Noticee. It was also submitted on behalf of the Noticee that the amount taken from these clients was refunded. In this regard, I find that the above submission of the Noticee appears to be an attempt on part of the Noticee to delink himself from the employees who were acting at his behest. The very fact that the money received from the clients who were misrepresented was received in the bank account(s) of the Noticee and not in the bank account of the employees (who misrepresented) or any other account, leads to the conclusion that the said employees were acting as per the instructions of the Noticee to somehow lure the clients into purchasing the products / services of the Noticee. The submission regarding refund of money to the clients and expulsion of the employees appears to be a mere afterthought aimed at showing some corrective action.   

Noticee handled client’s demat account

31. It has been alleged in the SCN on the basis of complaint of one Mr. Krishna Madhaw that that Noticee’s executive was asking for reset of client password which had expired and also asked the client to deposit money in his demat account and rest of the things would be taken care of by Striker Stock Research. Extracts of call recordings are as under: 

32. In this regard, the Noticee has submitted that SEBI has misinterpreted the transcript as the employee was just assisting the client in resetting his demat account password, which the client was unable to do on his own. Further, in the end the employee meant that “you just invest your money in demat account and if you will face any difficulties then I will guide you”. The Noticee also submitted that the employee has never punched any trade on the client’s behalf and Striker Stock Research was not involved in managing the funds or securities on behalf of the clients, rather it just offered/ provided execution and implementation services to this client free of cost.

33. With regard to the allegation of handling of client’s demat account, it is noted that the Noticee has not disputed the contents of the call record transcript noted above. One fact which emerges clearly from the above conversation is that the executive of the Noticee asked for OTP from the client for resetting client’s password and that she was resetting the password at her end. This act in itself is in derogation of the most basic ethic of financial conduct that one should not ask for confidential information like OTP from the other and should not operate the other person’s account. Noticee has also put forth that no order was punched by the employee for the said client. While the SCN does not bring any detail as to punching of trade by the Noticee / his executives, the conduct of the Noticee in seeking the OTP and operating the client’s account to reset the password, cannot be treated as acceptable on part of a SEBI registered IA. The acceptable way of providing the assistance claimed to have been provided by the Noticee, would have been to guide the client step-by-step and not to do the same at his behest. I am therefore unable to agree with the submissions of the Noticee in this regard.

Noticee received fees from clients before starting of its services 

34. It has also been alleged in the SCN that the Noticee had taken the fees from the client much before the start of the service for which the client had subscribed. The table below highlights the same:

35. As recorded in the SCN, the difference between receipt of payment and start of service ranged from 61 days to 309 days. Out of 26 sample clients in case of 11 clients, the Noticee charged fees much prior to start of its services, with the amount of advance fees ranging from ₹ 3,000 to ₹ 3,32,500 per client.

36. In this regard, the Noticee submitted that in all such cases client’s other service was running at that point of time, and starting another service simultaneously would not be in the best interest of the clients as he would not have been able to take benefit of it. Further, there is nothing wrong in taking an advance payment for services as the client gets discount if they opt for a service in advance and such fees are charged after proper consent from the client. Noticee also submitted that regarding restrictions for advance payment for more than 2 quarters, SEBI came out with the Circular only on 23^rd September, 2020 and prior to that there were no limitations for advance payment.

37. In this regard, I note that admittedly, the Noticee had taken payments from clients for services while other services (already subscribed by the clients) were running. During the hearing, the authorized representative was asked to explain how the Noticee used to track the performance of the service provided to a particular client. In response thereto, the authorized representative submitted that the Noticee does not track whether the client was acting upon the advice / tips being provided by the Noticee.  Thus, it emerges that the Noticee was only focussed on selling its services / products to its clients without any regard to the suitability of the products to the clients. The fact that clients were sold services well in advance while another service was running exemplifies the strategy of the Noticee. Such conduct of the Noticee shows that his sole objective was to charge/extract more and more fees from the clients without showing any concern to how the product / service fared for the client. While the provision for taking advance fee from the clients (not exceeding 2 quarters) with the consent of the client was specified vide the Circular dated September 23, 2020, the conduct of the Noticee (highlighted in the table above) in taking fee from clients (without specific consent from them), up to 309 days in advance, while they had other services running, ill-behooves an investment adviser registered with SEBI.  

38. To summarise the conduct of the Noticee discussed in the preceding paragraphs, I note the following: 

38.1 Noticee sold high-risk products to medium risk-bearing clients without there being any upward change in the financial status of the clients with the objective of fee maximization.

38.2 Noticee charged unreasonable fee from the clients which in many cases exceeded the annual income and the proposed income of the client recorded in his risk profiling form with the sole objective of profit maximisation.

38.3 Noticee made false assurances / profit commitments using look-alike e-mail IDs such as [email protected], [email protected], etc. and also using telephonic conversations to lure clients to subscribe to his products.

38.3 Noticee misrepresented the clients (by giving them incorrect information about the ownership, legal status / constitution of the Striker Stock Research, trading process, etc.) to somehow entice the clients into purchasing the products / services of the Noticee.

38.4 With regard to an investor complaint, the Noticee forced the complainant to withdraw the complaint and made further provision of services contingent to such withdrawal of complaint.

38.5 Noticee failed to follow basic ethics of financial conduct by asking for confidential information such as OTP from the client and resetting his password at Noticee’s

38.5 Noticee sold services/products well in advance while another service was running to charge/extract more and more fees from the clients without showing any concern to how the product / service fared for the client.

39. It is  noted  that  as  per regulation  2(m)  of  the  IA  Regulations “investment adviser” means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called. The term “investment advice” has been defined under regulation  2(l) as  advice relating to investing in, purchasing, selling or otherwise dealing  in  securities  or  investment  products,  and  advice  on  investment  portfolio containing securities or investment products, whether written, oral or through any other  means  of  communication  for  the  benefit  of  the  client  and  shall  include financial planning. On a perusal of these definitions, it becomes clear that the role of an “investment  adviser” envisaged under the Regulations is that of a person rendering  advice  relating  to  investing,  buying,  selling  or  dealing  in  securities  or investment   products   and   advice   relating   to   investment   portfolio   containing securities  /  investment  products. In  my  view,  looking  at  the  scheme  of  IA Regulations, the role of an investment adviser is to provide honest and fair advice to   its   clients   considering   their   financial   situation,   investment   experience, investment  goals,  etc.  The  investment  adviser  should  also  make  adequate disclosures of the relevant material information to its clients and should charge fair and  reasonable  fee  from  its  clients.  I  find  that  the Noticee, being  a  registered  IA  was  under  an  obligation  to  provide  the investment  advice,  suitable  to every client. However, as discussed the Noticee sold products meant for high risk bearing clients to clients who did not have such risk appetite as the same would yield more fee to the Noticee. The Noticee also made reckless representation to its clients when admittedly, his employees provided incorrect information to clients regarding the owner, board of directors, trading being in dollars, etc. Further, charging of unreasonable fee from the clients which in many cases exceeded the annual income and the proposed investment of the client recorded in his risk profiling is also tantamount to deceptive behaviour on part of the Noticee.   

40. An IA cannot make a false statement without having reasonable grounds for believing it to be true as mandated in PFUTP Regulations. An investment adviser cannot  sell  products  guaranteeing  assured  returns  to  investors  as  was being done by the Noticee in the present case.  Knowing fully well that all investment in stocks, derivatives, etc. in respect of which the Noticee was offering investment advice are subject to market risk, he was falsely promising unrealistic assured  returns  on  investments  and  had communicated the same to clients through emails using look alike email IDs. It is also noted that the advisory process being followed by the Noticee was akin to selling pre-fixed plans and extracting more and more money from the clients. In the communications with the clients, fake names were being used and the clients were being given incorrect and incomprehensible information. The Noticee was controlling all the payments made by clients (including those whose complaints have been mentioned in this order) in all the bank accounts linked on his website. The modus operandi adopted  by  the Noticee discussed hereinabove shows that the Noticee was actually not practicing investment advisory in the manner envisaged under  the  IA  Regulations,  which essentially would  involve  advising  the  client considering   his/her   financial   situation,   risk   appetite,   financial   goal,  prior experience,  etc.  From the findings discussed hereinabove it is clear that the Noticee was running a pre-meditated device, plan or scheme whereunder, the employees / tele-callers / representatives of Noticee would lure gullible investors by misrepresenting, making unrealistic profit commitment, etc.  and then more and more money would be extracted from them by selling them various products which did not even match their risk profile in many instances, and also while services under existing packages were still running.  

41. The above discussed non-genuine and deceptive activities, misrepresentation is fraudulent and is covered within the definition of “fraud” defined under regulation 2(1)(c) of “PFUTP Regulations, which provides as follows:

“(c) “fraud” includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include—

• a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment;
• a suggestion as to a fact which is not true by one who does not believe it to be true;
• an active concealment of a fact by a person having knowledge or belief of the fact;
• a promise made without any intention of performing it;
• a representation made in a reckless and careless manner whether it be true or false;
• any such act or omission as any other law specifically declares to be fraudulent,
• deceptive behaviour by a person depriving another of informed consent or full participation,
• a false statement made without reasonable ground for believing it to be true.
• the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or anything derived from it other than the market price.

And “fraudulent” shall be construed accordingly

…”

42. Therefore, I find that the fraudulent activities / dealings on part of the Noticee, of the nature discussed in preceding paragraphs, and summarised and analysed in paragraphs 38-41 above, are in violation of the provisions of section 12A(a), (b) and (c) of the SEBI Act  and regulations 3 (a), (b), (c) and (d) of the PFUTP Regulations.  

43. It is noted that the Noticee has not been fair in its dealing with his clients and has not been transparent about the fee charged from its clients. The fee charged to the clients is also unreasonable. Noticee has adopted unethical business practices/ modus operandi (promising assured returns, selling products meant for high-risk bearing clients to medium risk-bearing clients, taking payments in advance from clients for products / services while other services are running without assessing their performance for the clients, etc.) to hoodwink the clients into buying/subscribing multiple products in order to maximize fee for his own benefit. The act of Noticee is in complete disregard to the responsibility entrusted on him under IA regulations to act in fiduciary capacity and in the best interest of its clients and prioritizing client’s interest above his own. In order to maintain fiduciary relationship, one of the essential elements is to strictly adhere to the Code of Conduct for an Investment Adviser prescribed under the IA Regulations. Looking at the activities and manner of operation of Noticee in the present case, which have been discussed in detail in the preceding paragraphs, I am of the view that Noticee failed in its responsibility towards its clients and has violated regulation 15 (1) of IA Regulations and has also failed to abide by clauses 1, 2 and 6 of Code of Conduct for Investment Advisers provided under the IA Regulations read with regulations 15 (9) thereof. 

44. Regulation 17 of the IA Regulations, inter alia, stipulates the IA to ensure that the investment advice provided to the clients is appropriate to their risk profiles. The regulation further requires that the IA should understand / consider the nature and risks of products or assets, and the IA shall also have a reasonable basis for believing that a recommendation provided meets the investment objectives. In the present case, it is noted that the Noticee did not follow any process for selecting investments based on client’s investment objective and financial situation, rather majority of the clients have been sold pre-fixed plans (in certain cases promising unrealistic returns) irrespective of their financial situation, investment objective, etc. with the sole purpose of extracting more and more fee from the clients. I, therefore, find that the Noticee has violated regulation 17(a), (c), (d) and (e) of the IA Regulations.

45. Regulation 21(1) of the IA Regulations requires the IA to redress investor grievances promptly. As elaborated earlier, with regard to an investor complaint, the Noticee forced the complainant to withdraw the complaint and made further provision of services contingent to such withdrawal of complaint. This is in stark contradiction to the claim of the Noticee that it has put in place adequate procedure for expeditious grievance redressal [required under regulation 21(2)]. I, therefore, find that the Noticee has violated regulation 21(1) and (2) of the IA Regulations.

DIRECTIONS AND MONETARY PENALTY: 

46. The SCN, inter alia, envisages issuance of a direction to the Noticee for refund of the amount of ₹ 7,53,94,971 received from the clients/investors/complainants on or after April 1, 2018, as fees or consideration or in any other form in respect to the investment advisory activities. In this regard, I note that directing a registered IA to refund the fee would be justified in cases where the said IA has collected the fee from clients / investors without being eligible for the same. In the present case, the SCN does not allege that the Noticee was ineligible to collect fee or was collecting fee without being registered. It is also not alleged in the SCN that the Noticee had entered into void or voidable agreements with its clients whereunder fee was paid by the clients. It is pertinent to mention here that the charges levelled in the SCN, as discussed earlier, have been based on the activities / conduct of the Noticee as an IA registered with SEBI, and after being considered from that perspective only, have been found to be in violation of the provisions of PFUTP Regulations and IA Regulations, as has already been noted. However, the SCN does not crystalize as to what part of the total fee of ₹ 7,53,94,971 was collected by the Noticee in violation of the provisions of IA Regulations / PFUTP Regulations / SEBI Act. Taking the above into account, in my view, the direction to refund the fee collected by the registered IA (Noticee) would not be suitable in the present case, and other directions need to be considered.

47. I note that a person acting as a securities market intermediary is expected to protect the interests of investors in the securities market in which he/she/it operates and it does not befit him to become a party to any market misconduct. Every market intermediary is required to maintain high standards of integrity, promptitude and fairness in the conduct of his business dealings, and not be motivated purely by prospects of financial gain. The intermediary should not abuse the certificate of registration granted to it, in any manner, for carrying out any non-genuine, deceptive or fraudulent acts. Since the conduct of Noticee discussed in preceding paragraphs does not appear to be in the interest of investors and the securities market and the alleged violations of the provisions of SEBI Act, PFUTP Regulations and IA Regulations have been established, I am of the view that necessary directions are required to be issued to the Noticee restraining him from the securities market for an appropriate period of time.

48. The SCN also envisages penalty under sections 11B(2) and 11(4A) read with sections 15HA, 15HB (for violations prior to March 8, 2019) and section 15EB (for violations subsequent to March 8, 2019) of SEBI Act in respect of the violations alleged therein. As discussed in previous paragraphs, the violations of provisions of SEBI Act, PFUTP Regulations and IA Regulations (for the period before March 8, 2019 and even afterwards) have been established against the Therefore, I find that monetary penalty under section 15HA, 15HB and 15EB as envisaged under the SCN is attracted for the violations committed by the Noticee.

49. It is relevant to mention here that for the imposition of penalty under the provisions of the SEBI Act, guidance is provided by Section 15J of the SEBI Act. The said provision reads as follows:

“Factors to be taken into account while adjudging quantum of penalty. 15J. While adjudging quantum of penalty under 15-I or section 11 or section 11B, the Board or the adjudicating officer shall have due regard to the following factors, namely: —

• the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
• the amount of loss caused to an investor or group of investors as a result of the default;
• the repetitive nature of the default.

Explanation. —For the removal of doubts, it is clarified that the power to adjudge the quantum of penalty under sections 15A to 15E, clauses (b) and (c) of section 15F, 15G, 15H and 15HA shall be and shall always be deemed to have been exercised under the provisions of this section.”

50. It is noted that in the instant case, the SCN has not brought out the quantum of profit/gains made by the Noticee while selling high-risk products to medium riskbearing clients, promising assured returns, misrepresenting the clients and collecting unreasonable amount of fees. I also note that the SCN does not quantify the loss which the clients have suffered on account of the Noticee’s acts and conduct. However, as discussed earlier in paragraphs 38-42, the Noticee in the present case has indulged into multiple acts which have been found to be fraudulent and in violation of the provisions of SEBI Act and the PFUTP Regulations. Further, the Noticee has also indulged into multiple acts / omissions which have been found to be in violation of the IA Regulations. It is also relevant to note from Noticee’s submissions that from the year 2017-18 till 2022-23, the Noticee has provided services to more than a thousand clients (total 1542 clients including the repeated number of clients who would have continued with the Noticee over the said period). It is noteworthy that the present SCN is based upon an examination of complaints of 27 clients only and therefore, the violations committed by the Noticee could have been much more than what has been discussed in the preceding paragraphs. Further, as on the date of this order, there are 12 investor complaints pending against the Noticee on the SCORES portal. In my view, the above factors need to be weighed in while arriving at the amount of penalty to be imposed on the Noticee.

51. Therefore, I, in exercise of the powers conferred upon  me  under  sections 11(1), 11(4) and 11B(1) of the SEBI Act read with regulation 35 of Intermediaries Regulations and regulation 28 of IA Regulations hereby issue the following directions against the Noticee:

a) The Noticee is restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the  securities  market  in  any  manner whatsoever,  for  a  period  of  two (2) years  from  the date of this order. 

b) The Noticee is also restrained from associating himself as a director or key managerial personnel with any listed public company or any public company which intends to raise money from the public, or any intermediary registered with SEBI, for a period  of  two (2) years  from  the date of this order.

c) The Noticee, in respect of his clients who have continuing services as on the date of this order, shall ensure pro-rata refund of the fee paid by them, within a period of 30 days from the date of this order.

d) The Noticee is directed to resolve the complaints pending against him in the SCORES portal or otherwise, and make refunds that may be required to be made for resolution of the complaints, within a period of 30 days from the date of this order.

e) Any refund to be made by the Noticee to his clients pursuant to this order shall be effected only through Bank Demand Draft or Pay Order or electronic fund transfer or through any other appropriate banking channel, which ensures audit trails to identify the beneficiaries of refunds.

f) The Noticee shall place a copy of this order on his website and shall also send a copy of this order to all his clients through email within 10 days from the date of this order.

g) The Noticee shall within a period of 3 months from the date of this order, furnish a report to SEBI addressed to the “Division Chief, Division of Post-Inspection Enforcement Action, Market Intermediaries Regulation and Supervision Depatment, SEBI Bhavan II, Plot No. C7, G Block, Bandra Kurla Complex, Bandra (East) Mumbai –400051”, duly certified by a Chartered Accountant, certifying that the directions issued at paragraph 51(c) to (f) have been complied with. 

52. Further, in exercise of the powers conferred upon  me  under  sections 11(4A) and 11B(2) read with sections 15HA, 15HB (for violations prior to 8.3.2019), 15EB (for violations subsequent to 8.3.2019) and 15J of the SEBI Act, I hereby impose the following monetary penalty:

53. The Noticee shall remit / pay the said amount of penalties within forty five (45) days from the date of receipt of this order. The Noticee shall remit / pay the said amount of penalties either through online payment facility available on the website of SEBI, i.e. www.sebi.gov.in by clicking on the payment link: ENFORCEMENT -> Orders -> Orders of ED/CGM (Quasi-Judicial Authorities) -> PAY NOW, or by way of Demand Draft in favour of “SEBI – Penalties Remittable to Government of India”, payable at Mumbai. In case of any difficulties in online payment of penalties, the Noticee may contact support at [email protected]. The demand draft or the details/ confirmation of e-payment should be sent to “The Division Chief, Division of PostInspection Enforcement Action, Market Intermediaries Regulation and Supervision  Department, Securities and Exchange Board of India, SEBI Bhavan II, Plot no. C-7, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai -400 051” and also to email id:[email protected] in the format as given in table below:

54. This order comes into force with immediate effect.

55. This Order is without prejudice to the right of SEBI to initiate / continue other actions against the aforementioned entity in accordance with law.

56. The directions issued vide this order do not preclude the clients /investors to pursue other legal remedies available to them under any other law, against the Noticee for refund of money or deficiency in service before any appropriate forum of competent jurisdiction.

57. A copy of this order shall be sent to the Noticee, recognized Stock Exchanges, the relevant Banks, Depositories and Registrar and Transfer Agents of Mutual Funds to ensure that the directions given above are strictly complied with.

58. Further, a copy of the order shall also be sent to Government of Madhya Pradesh for their information and action, if any.

                                                                                                                       Sd/-

                                                                                                 AMARJEET SINGH  

Date: February 21, 2023                                                        EXECUTIVE DIRECTOR  

Place: Mumbai                            SECURITIES AND EXCHANGE BOARD OF INDIA