Description

SEBI order under Section 12(3) of SEBI Act, 1992 addressing multiple violations by Investment Adviser Capital Vraddhi Financial Services during inspection period April 2020 to March 2022.

Summary

SEBI has issued an order under Section 12(3) of the SEBI Act, 1992 read with Regulation 27(5) of the SEBI (Intermediaries) Regulations, 2008 against Capital Vraddhi Financial Services (Proprietor: Mr. Raju Jhariya), a registered Investment Adviser (Registration No. INA000005291). The order stems from a comprehensive inspection conducted for the period April 01, 2020 to March 31, 2022, which revealed multiple violations of IA Regulations, PFUTP Regulations, and applicable circulars.

Key Points

  • Investment Adviser Capital Vraddhi Financial Services found in violation of multiple SEBI regulations during inspection period 2020-2022
  • Nine major categories of violations identified including lack of requisite qualifications, non-compliance with fee structure, and fake reviews
  • Violations include failure to maintain proper client agreements, inadequate record-keeping, and not conducting risk profiling
  • Noticee provided free trials to 116 clients in contravention of regulations
  • Employees used personal phone numbers for pitching advisory services
  • Fake reviews posted about the IA through blogs
  • Similar products sold for concurrent periods without proper disclosure
  • PAN of proprietor: AQKPJ9329B

Regulatory Changes

No new regulatory changes introduced. This order enforces existing provisions under:

  • SEBI (Investment Advisers) Regulations, 2013
  • SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003
  • SEBI (Intermediaries) Regulations, 2008
  • Code of Conduct for Investment Advisers as specified under Third Schedule
  • Various SEBI circulars including SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020 and SEBI/HO/IMD/DF1/CIR/P/2019/169 dated December 27, 2019

Compliance Requirements

Investment Advisers must ensure:

  • Possession of requisite qualifications as per Regulation 15(13) and Regulation 7 of IA Regulations
  • Strict adherence to prescribed fee structures under Regulation 15A
  • Proper client agreements meeting all regulatory requirements
  • Maintenance of comprehensive records as per Regulation 19(1)
  • Conducting risk profiling and suitability assessments for all clients (Regulations 16 and 17)
  • Avoiding provision of unauthorized free trials
  • Using only official communication channels for client interactions
  • Ensuring honesty and fairness in all marketing and promotional activities
  • Compliance with diligence standards under Code of Conduct Clauses 1, 2, and 8
  • Avoiding fraudulent and unfair trade practices under PFUTP Regulations 3(a), (b), (c) and (d)

Important Dates

  • Inspection Period: April 01, 2020 to March 31, 2022
  • Noticee’s Response: January 02, 2023
  • Enquiry Report: October 23, 2024
  • Order Date: As per circular reference WTM/AS/MIRSD/MIRSD-SEC-3/31786/2025-26

Impact Assessment

Market Impact: Limited direct market impact as this is an enforcement action against a single investment adviser. Does not affect trading operations or broader market infrastructure.

Regulatory Impact: Reinforces SEBI’s commitment to enforcing compliance standards for investment advisers. Sets precedent for thorough inspection and enforcement against IAs violating multiple regulatory provisions simultaneously.

Industry Impact: Serves as a warning to other investment advisers regarding the importance of maintaining proper qualifications, fee structures, client agreements, record-keeping, and ethical marketing practices. The identification of nine separate violation categories demonstrates SEBI’s comprehensive inspection approach.

Investor Protection: Enhances investor protection by addressing practices such as fake reviews, unauthorized free trials, and inadequate risk profiling that could mislead or harm clients of investment advisory services.

Impact Justification

Enforcement action against a single investment adviser for regulatory violations. Does not impact broader market operations or trading activities but sets regulatory precedent for IA compliance standards.