"SEBI Slaps Rs 25 Lakh Penalty to Monetary Solutions, SEBI Registered IA''

In recent action on regulatory compliance, Securities and Exchange Board of India (SEBI) had imposed a penalty of Rs 25,00,000 to M/s. Monetary Solutions (Proprietor: Mr. Ankit Vyas), the SEBI Registered Investment Adviser. The inspection took place from September 19, 2022 to September 23, 2022. The focus of the inspection was to look into compliance with regulatory requirements under PFUTP Regulations, IA Regulations and circulars issued by SEBI. Ankit Vyas was registered with SEBI as an Individual Investment Adviser and was the subject of this inspection.

SEBI appointed Ms. Soma Majumdar as Adjudicating Officer to inquire into and adjudicate the matter.

The extracts of the alleged violations, the reply of Ankit Vyas on the alleged violations, and the findings of the Adjudicating Officer are as follows:

S. No.	Alleged violations	Reply of Ankit Vyas on the Alleged Violations	Findings of the Adjudicating Officer
1	Employees of the IA and their Compliance with the Qualification Requirement	Ankit Vyas argued that the qualification requirements were introduced with the 2020 IA Regulations amendment, which allowed a three-year window for compliance. He claimed that since the inspection period fell within this window, no penalties should apply. Vyas also stated that Ms. Komal Soni, a back-office executive, did not require NISM certification. He further claimed that Gaurav Pathak had the necessary NISM certifications, which were displayed in the office.	Before the 2023 amendment, regulation 7 of the IA regulations stipulated that investment advisers registered under the IA regulation as of its commencement on April 21, 2013, were required to ensure that their associated persons met the qualification and experience requirements within three years. This did not apply to the Investment Adviser himself. Since the Certificate of Registration was granted to Ankit Vyas on March 03, 2015, which was much after the IA regulations came into effect, the contention of Ankit Vyas is not tenable. Mr. Jaspreet Singh and Mr. Akshay Soni did not possess Level 1 NISM Certificate and Mr. Rahul Panwar and Ms. Komal Soni lack both Level 1 and Level 2 NISM Certificate. Consequently, these four employees of Ankit Vyas provided investment advisory services without meeting the NISM certification requirements. Additionally, it was noted that the work profile of Ms. Komal Soni was of compliance, therefore, the contention of Ankit Vyas was not tenable.
2	Maintenance of Records	Ankit Vyas explained that the data was stored on a hard disk, which failed and was seized by the inspection team. Therefore, it is a case of data loss, not non-maintenance of records.	Ankit Vyas was advised to provide evidence supporting his claim that the hard disk was seized, but no such evidence was submitted. Ankit Vyas charged fees from clients without having any agreements in place and did not maintain call recordings, copies of agreements, KYC documents, invoices, risk profiling, or email communications with clients.
3	Similar Products sold for the Concurrent Period	Ankit Vyas submitted that neither any fraud has been done by him nor such sales are in violation of any SEBI Regulations, before or after amendment and he has acted with complete fairness and diligence.  He also submitted that confusion may have been caused in the interpretation of the data available with the Board.	The IA regulations mandate that Investment Advisers must act with honesty, fairness, and diligence, ensuring their advice is well-researched and considers all alternatives. The findings revealed that Ankit Vyas was indeed selling the same advisory products or services multiple times with overlapping subscription periods. This appeared to be an attempt to maximize fees or commissions from clients, indicating a potential conflict of interest. While no specific client losses or fraudulent activities were directly proven, the practice highlighted a concern that Ankit Vyas’s actions might not have been fully aligned with the client’s best interests.
4	Fees received from clients to personal account of compliance officer Mr. Ankit Vyas	Ankit Vyas argued that since he is the sole owner of the firm, there’s no rule against him receiving fees in his personal account. He also denied claims of overcharging clients, stating that no specific client details were provided	It was confirmed that fees were received in Mr. Vyas’s personal accounts (HDFC, Axis, and ICICI). The ICICI account was not listed on the firm's website, which caused transparency issues. Although no explicit rule prohibits using personal accounts for fees, it raised concerns about proper financial management and transparency
5	Providing Free Trial to Clients	Ankit Vyas argued that no free trials were given after SEBI issued the circular banning them. He explained that the mention of free trials in their emails was a mistake due to not updating their standard email format.  He claimed that no actual free trials were provided and pointed out that there were no client complaints about receiving free trials, supporting his claim.	Evidence showed that Ankit Vyas did offer free trials to clients. When a client was on-boarded, an email was sent to them from Ankit Vyas stating: “...Monetary Solution investment adviser offers 2 days Free Trial and evaluation for our clients to ensure that our products and services will meet their needs before they pay for a subscription. By accepting and taking advantage of the free trial and making a payment for the subscription....” The possibility of free trials being provided by Ankit Vyas could not be ruled out, as he had not made any effort to remove this standard paragraph from their emails and had not submitted evidence that they had rectified the issue.
6	Unfair Amount of Fees Charged from Client and faulty suitability assessment	Ankit Vyas argued that the fee limit of Rs. 1.25 lakhs per client was only introduced in January 2021. Since the alleged fees of Rs. 1,83,200 were charged before this limit was set, he believed that these charges should not be considered a violation.	The inspection report provided to Ankit Vyas as part of the show-cause notice included details of clients from whom he charged fees close to or more than the proposed investment amount. It was found that Ankit Vyas has raised multiple invoices and collected an advisory fee of Rs. 1,83,200/-. The proposed investment amount of Mr. Purushottam Mahobia was Rs 1-2 lakh and annual income was Rs. 1-5 Lakh. The start date of the first service offered to Mr. Puroshottam Mahobia was December 02, 2019 and the end date of the last service offered to Mr. Puroshottam Mahobia was August 10, 2021 i.e. Mr. Puroshottam Mahobia paid an advisory fee of Rs. 1, 83, 200 to Ankit Vyas for the next 21 months which is well within the annual income of Mr. Purushottam Mahobia.
7	Risk Profiling Questionnaire	In respect of risk profiling questionnaire Ankit Vyas submitted that no standard formats or specific guidelines in respect of risk profiling questionnaires have been published by the SEBI and he had prepared a questionnaire by using questions prevalent in Investment Advisory in Indore and have been thought to be appropriate by him.	The adjudicating officer noted that the questions in Ankit Vyas's risk profiling questionnaire seemed designed to categorize clients as high-risk investors. Sample questions included: 1.     Would you invest where a small return is earned associated with small risk instead of a high return associated with high risk? 2.     When market is not performing well would you like to invest in more risky investment instead of less risky investment to earn high return? 3.     High risk is associated with high return, medium risk is associated with medium returns and low risk is associated with low returns? What risk can you bear (not prefer)? These questions appeared to lead clients towards identifying as high-risk investors. It was observed that Ankit Vyas did not offer services to clients with a low-risk appetite, suggesting a potential bias in the risk profiling process.
8	IA’s operation are conducted from office not registered as Registered Office/ Branch Office	Ankit Vyas submitted that it is completely false and there remains no evidence in this regard and no enquiry has been conducted by SEBI to actually ascertain even the existence of such a branch. He claimed that his statement about running the Udaipur branch was made under coercion and pressure from SEBI officers and was therefore false.	During the inspection, Ankit Vyas admitted to running a branch office in Udaipur. However, in his response to the SCN, he retracted this statement, claiming coercion. The officer noted that Ankit Vyas provided conflicting statements. It was advised that Ankit Vyas submit evidence to support his claim that he was coerced or that the Udaipur branch did not exist. Despite reminders, no evidence was provided. Furthermore, the documents provided included an email from Shri Abhishek Dave confirming the Udaipur branch was operational from October 2017 to July 2018, including salary details and attendance records of employees.
9	Publishing of Investor Charter	Ankit Vyas claimed that the Investor Charter and SCORES portal link were available on his website, and the allegations were false and frivolous. He emphasized that any alleged admission made under coercion should not be the basis for imposing penalties, especially when the violation did not exist.	It was observed that Ankit Vyas had not disclosed the Investor Charter on his website and did not provide the link to lodge complaints on SCORES. The evidence included a letter dated September 20, 2022, from Ankit Vyas, stating, “I have not displayed the Investor Charter on my website as required under SEBI Circular dated December 13, 2021.” During the inspection, Ankit Vyas admitted that he had not displayed the Investor Charter on his website.
10	Fake Reviews about Monetary Solutions through its Website	Ankit Vyas argued that the accusations were based on false admissions made under coercion and force, asserting that no fake advertising or testimonials had been published. When asked to provide details of clients whose reviews were mentioned on the website, Ankit Vyas admitted that the testimonials shown were fake and used solely for advertising purposes.	It was observed that Ankit Vyas had shown fake testimonials and past performance details on the website to mislead clients. Ankit Vyas's submission stated, “...testimonials being shown on the website of monetary solution investment advisor are only for advertisement purposes and they are not our clients and are fake testimonials...” The website listed details of past performance, mentioning 45 past tips, all of which were shown as successful, with profits ranging from 1,000 to 30,000 INR. This further supported the allegation that fake testimonials and performance records were used to attract clients.

Penalty for default in case of Investment Adviser and Research Analyst.

According to Section 15EB of the SEBI Act, 1992, if an Investment Adviser or Research Analyst fails to comply with regulations or directions from the Board, the penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees.

Under Section 15HA, penalties for fraudulent and unfair trade practices range from ₹5 lakh to ₹25 crore or three times the profits made, whichever is higher.

Order

Having considered the facts and circumstances of the case, the material available on record, the factors mentioned in 15J of SEBI, the purpose of SEBI Act, SEBI impose following penalty:

• Section 15EB of SEBI Act, 1992: ₹18,00,000

  
  
  
  

• Section 15HA of SEBI Act, 1992: ₹7,00,000

• Total Penalty: ₹25,00,000

Key Takeaways for Investment Advisers

1. The Investment Adviser as well as his employees shall meet with the qualification and certification at all times. It is important for ongoing professional development and certification renewal to maintain compliance with qualification requirements.

   
   

2. For Investment Adviser Clients’ interests should always come first. Investment Adviser should always display Code of Conduct, Investor Charter, and SEBI RA certificate in their office. It is a commitment to transparency and ethical practice.

3. It is the duty of the Investment Advisers to ensure all information is accurately recorded and easily accessible. Like KYC documents and risk assessments to advice records and client interactions, records of recommendations given, rationale for arriving at investment advice, assessment of the advice, a register or record containing list of the clients, the date of advice, nature of the advice, the products/securities in which advice was rendered and fee, if any charged for such advice, call recordings, emails, SMS, any other legally verified records in physical or electronic form dated and signed.

4. Before offering advice or charging fees, IA shall enter into an investment advisory agreement with their clients. This agreement must cover all mandatory terms to protect both parties and ensure clear communication. They cannot provide advice or charge fees until this agreement is signed.

5.  IAs shall not provide free trial for any products/services.

6. IAs shall not accept part payments (where some part of the fee is paid in advance) for any products or services.

7. All registered Investment Advisers to display the Investor Charter, a link to SEBI SCORES, and options for dispute resolution prominently to keep clients informed and engaged.

8. IAs must cooperate with inspections, providing relevant documents and information.

The primary takeaway from this case is that Investment Advisers must strictly adhere to regulations and maintain honesty in their practices. Being ethical and sticking to regulations is crucial to maintaining trust and avoiding penalties. Therefore, Investment advisers must adhere strictly to regulations and maintain transparency to avoid heavy penalties.

To read the complete order, click here.

For further queries, please contact us at anjalibansalcs@gmail.com.

Disclaimer: While every effort has been made to ensure the accuracy of this article, Anjali Bansal and Associates assumes no responsibility for any errors or omissions. This document does not substitute professional advice, and readers should seek guidance before acting on any information contained herein.