Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs12 lakh on Optionsmaster Research Advisory Services and Om Consultancy for engaging in unregistered investment advisory activities. Both entities have been ordered to refund Rs5.22 crore to their clients, an amount collected between September 2021 and October 2022.
In an order, G Ramar, chief general manager (CGM) of SEBI, says, "Optionsmaster and Om Consultancy have provided investment advisory services without holding the certificate of registration from SEBI, which is in violation of Regulation 3(1) of the IA Regulations. Further, the noticees have also indulged in fraudulent activities of claiming accuracy of advice and guaranteeing assured returns thereby violating Section 12 A(a), (b), (c) of SEBI Act, 1992 of the PFUTP Regulations. I therefore find that the Optionsmaster and Om Consultancy are liable for penalty under Section 15EB and 15HA of the SEBI Act".
SEBI investigation was initiated after it received a complaint in August 2022 regarding the activities of Optionsmaster Research Advisory Services. The complaint included payment receipts and screenshots of the company's website which, allegedly, contained misleading information about its services.
On further examination, SEBI found that Somnath Patil, the leader of Optionsmaster, had obtained approval from SEBI as a research analyst in August 2021. However, the website in question, researchadvisor.in, operated between October 2021 and October 2022, offering investor-specific services, such as risk profiling and suitability assessments which fall under the scope of activities reserved for registered investment advisers.
Despite being granted approval for research analyst services, the website presented itself as a 'research advisor,' offering tailored investment advice to individual clients, which clearly violated SEBI's regulations.
SEBI found that the services included trading tips, predicting profit percentages and sending follow-up messages about trade actions that, typically, characterise investment advisory services. The website also offered suitability assessments to categorise clients into different risk profiles, a core component of investment advisory services.
In addition to the activities of Optionsmaster, the market regulator found that Om Consultancy was involved in providing unregistered investment advisory services. The two entities had entered into a memorandum of understanding (MoU) with a 50-50 profit-sharing arrangement which indicated that Om Consultancy was more than just a promoter of research services, SEBI says.
Despite Om Consultancy's claim of providing only human resources services, SEBI found no evidence to support this, suggesting that both parties were jointly engaged in offering unregistered investment advice.
The website made several misleading claims, including promises of high accuracy in trading recommendations and guaranteed profits. According to SEBI, such statements were deceptive and manipulative, designed to mislead investors into believing that certain returns were assured, which is impossible in the securities market. These practices violate SEBI's PFUTP Regulations, which prohibit fraudulent and unfair trade practices that deceive investors.
In light of the findings, SEBI issued a show-cause notice to the entities involved, detailing the violations of the SEBI Act and the applicable regulations. The regulator found that both Optionsmaster and Om Consultancy had failed to register as investment advisors despite offering tailored investment advice, thereby violating the regulatory requirements.
Optionsmaster and Om Consultancy have been penalised Rs6 lakh each for fraudulent practices.
