Description

SEBI order under Section 12(3) of SEBI Act, 1992 against Investment Adviser Capital Vraddhi Financial Services for multiple regulatory violations including lack of qualifications, non-compliance with fee structure, and fraudulent practices.

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 (PAN: AQKPJ9329B, Registration No: INA000005291). The order follows an inspection for the period April 1, 2020 to March 31, 2022, which revealed multiple violations of IA Regulations, 2013, PFUTP Regulations, 2003, and related circulars.

Key Points

  • Inspection conducted by SEBI for period April 1, 2020 to March 31, 2022
  • Noticee is a registered Investment Adviser with SEBI Registration No. INA000005291
  • Order issued under Section 12(3) of SEBI Act, 1992 and Regulation 27(5) of Intermediaries Regulations, 2008
  • Enquiry Report submitted by Designated Authority on October 23, 2024
  • Nine categories of alleged violations identified
  • Violations include lack of requisite qualifications, non-compliance with fee structure, improper client agreements, non-maintenance of records, failure to conduct risk profiling, and fraudulent practices
  • Fake reviews posted about IA services through blogs
  • Employees used personal phone numbers for pitching advisory services
  • Free trials provided to 116 clients
  • Similar products sold for concurrent periods

Regulatory Changes

This is an enforcement order, not a regulatory change. It reinforces existing compliance requirements 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 (Third Schedule of IA Regulations)
  • SEBI Circular SEBI/HO/IMD/DF1/CIR/P/2020/182 dated September 23, 2020
  • SEBI Circular SEBI/HO/IMD/DF1/CIR/P/2019/169 dated December 27, 2019

Compliance Requirements

Investment Advisers must ensure:

  • Compliance with Regulation 15(13) read with Regulation 7 regarding requisite qualifications
  • Adherence to prescribed fee structure under Regulation 15A and related circulars
  • Proper client agreement execution as per regulatory requirements
  • Maintenance of records as required under Regulation 19(1)
  • Conducting risk profiling and suitability assessment per Regulations 16 and 17
  • Compliance with Regulation 15(1) regarding product recommendations
  • Avoiding fraudulent and unfair trade practices under PFUTP Regulations
  • Adherence to Code of Conduct clauses on honesty, fairness, and diligence
  • Prohibition on fake reviews and misleading marketing practices
  • Use of official communication channels for advisory services

Important Dates

  • Inspection Period: April 1, 2020 to March 31, 2022
  • Noticee’s Response Date: January 2, 2023
  • Enquiry Report Date: October 23, 2024
  • Order Reference: WTM/AS/MIRSD/MIRSD-SEC-3/31786/2025-26

Impact Assessment

Market Impact: Limited direct market impact as this concerns a single Investment Adviser firm. However, serves as a precedent for enforcement actions against IAs violating regulatory norms.

Industry Impact: Significant for Investment Advisers as it highlights SEBI’s focus on comprehensive compliance including qualifications, fee structures, client agreements, record maintenance, risk profiling, and prohibition of fraudulent practices including fake reviews and improper marketing.

Investor Protection: Protects investors from unqualified advisers, improper fee structures, inadequate risk assessment, and fraudulent marketing practices.

Compliance Focus Areas: The order emphasizes multiple compliance areas including professional qualifications, transparent fee structures, proper documentation, risk profiling processes, and ethical marketing practices. The identification of fake reviews and use of personal communication channels for business indicates SEBI’s enhanced scrutiny of IA marketing and communication practices.

Impact Justification

Enforcement action against a registered Investment Adviser for multiple serious violations including fraudulent practices, lack of qualifications, and non-compliance with fee structures. Important for IA industry compliance standards but limited market-wide impact.