India’s market regulator on Tuesday fined Anugrah Stock & Broking Rs 90 lakh for misusing client funds: the fallout of years-long probe of the brokerage’s business.
“It is established that the noticee (Anugrah) failed to segregate client’s funds inter-se and between clients’ funds and its own funds, mis-utilised the funds of clients, pledged the securities of clients other than the respective client obligation, funding the clients by allowing exposure beyond the prescribed timeframe as specified in the regulations, failed to settle client accounts etc. Hence, the lapses/violations committed by the noticee deserves and attracts penalty as per law,” said the Securities and Exchange Board of India.
Investigations found that the brokerage had used client securities for pledging. Between 2017 and 2018, Anugrah used securities worth several crores belonging to hundreds of clients.
Sebi also found that the brokerage had given loan and advances to its group companies and associates and it was not correctly reporting margin collection to exchanges. It also found lapses in the client registration process, where Anugrah had not uploaded correct and complete details of its clients.
In November 2020, Sebi had suspended Anugrah pending completion of the enquiry proceedings. The regulator had also directed its directors not to dispose of any assets till the completion of proceedings. Earlier, in August 2020, NSE had disabled the trading terminal of the brokerage.
In January, the economic offences wing (EOW) took Anugrah’s director Paresh Kariya into police custody after allegations of cheating and siphoning off of investor funds had surfaced.
Last year, Sebi had tightened norms for pledging of investor securities after Anugrah and some other brokers were seen misusing client funds.
Under the earlier system, as part of the account opening form, several brokers obtained a power of attorney (POA) from their clients to access their account. A POA allowed a broker to move client securities from their dematerialised (demat) account to a collateral account, which could be accessed by both the broker as well as a client.
Sebi has now done away with the system of creating POAs to prevent brokers from having direct access to client securities.
The new system allows clients to pledge and re-pledge their holdings using an interface created by the depositories.