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Unscrupulous investment advisors (IA) often coax customers to buy more of their services by promising high returns, even when the customers do not have the financial capacity to take such risks.
A recent order passed by the market regulator against MI Research, under the proprietorship of Ashish Jain, recorded an employee of the advisory firm coaxing a client to buy an additional product/service by promising assured returns even though the client is said that he has financial constraints and that had to pledge farmland to make even the initial investment.
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Through the order dated September 18, the Securities and Exchange Board of India (Sebi) fined MI Research Rs 35 lakh under various sections of the SEBI Act.
In the order, the adjudicating officer noted, “(the) Noticee had acted with blatant disregard for the interest of its clients and exposed its uninformed clients to the risk of financial peril while simultaneously charging exorbitant fees from them”.
In the conversation, the client tells the IA’s representative, “Sir mene aapko pahle hi bola tha ki me investment nhi karta… Fir bi maine mere khet ko girvi rkakar ye kiya… Or muj se nhi ho payega”
(Sir, I had said even earlier that I don’t invest, still I pledged my farmland and invested. I can’t do that anymore.)
To this, the IA’s representative says, “Brother me samjh skta hu apka condition but agar ap esko krte ho tabhi apna profit ka return aayega… Or bhut jldi aagya.”
(Brother, I understand your condition but if you do this investment, only then will you get your return and you will get your return fast.)
The Sebi order stated, “The aforesaid documents show that Noticee (MI Research) also induced the complainant to repeatedly buy its services, that too charging an exorbitant amount, on the basis of such false assurance regarding high returns of securities recommended by it. I am of the view that Noticee, being a SEBI registered intermediary, is expected to be aware that all the investments in the securities market are subject to market risks and such returns cannot be assured.”
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The regulator’s investigations revealed that the IA collected nearly Rs 1.95 crore from 748 clients between November 2, 2017, and April 30, 2019, and the order stated that the fee “appears to be unreasonably high”.
However, the IA did not maintain proper records, which is again a violation of the regulator’s rules, the quantum of loss suffered by its clients was difficult to estimate.
In the order, the officer stated, “I am of the view that the aforesaid amount of money collected as fees by the Noticee from its clients was tantamount to disproportionate gain or unfair advantage obtained by Noticee, even though the material available on record does not sufficiently quantify the amount of loss caused to investors as a result of the aforementioned violations by Noticee.”
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