Mahavir Toshniwal, managing director (MD) of Pentagon Stock Brokers Pvt Ltd has been arrested by the economic offences wing (EOW) of Mumbai police in a fraud case of about Rs40 crore. Madhu Lunawat, co-founder and director of Pentagon Stock Brokers, had filed the complaint.
According to the complaint, Mahavir and Deepa Toshniwal, director of Pentagon Stock Brokers, had sold clients’ shares and “instead of paying the proceeds to the clients, misappropriated the sale proceeds of shares to themselves and also to the personal accounts of Mahavir Toshniwal, his Hindu undivided family (HUF) and his wife Deepa”.
In the complaint, Ms Lunawat, a chartered accountant (CA) and executive director of Pantomath Capital Advisors Pvt Ltd says, “We have now also come to know that Mahavir and Deepa Toshniwal in an illegal and unauthorised manner, pledged shares of Pentagon Stock Brokers’ clients including our shares kept with Pentagon Stock Brokers without knowledge and consent of the concerned shareholders.”
"Besides the above, four employees of Pentagon Stock Brokers, Vijay Singh, Jignesh Lathigra, Punit Agarwal, and Subhashchandra Vishwakarma have given us a handwritten, signed letter, in which the above financial crimes of Mahavir Toshniwal are highlighted. To offset and to make up for these losses, Mahavir and Deepa Toshniwal have sold shares belonging to me and my husband Mahavir Lunawat and clients,” the complaint filed by Ms Lunawat says.
Speaking with Moneylife, Mahavir Lunawat, the founder of Pentagon Stock Brokers, also group founder and MD of Pantomath Capital Advisors Pvt Ltd, a SEBI-registered merchant banker, says, "In 2019, we disassociated from Pentagon Stock Brokers and applied to the stock exchanges for the change. However, Mr Toshniwal continued to use our names. When we asked him about the affairs Pentagon Stock Brokers, he told us since we have dis-associated from the firm, we should not worry about its affairs."
The Lunawats own a 70% stake in Pentagon Stock Brokers while the balance is held by the Toshniwals.
Madhu Lunawat told Moneylife, “As we were not directly participating in the business activity of Pentagon Stock Brokers, we resigned 2017–18. We had already entered a deed of separation on 31 December 2019, in terms of which Mahavir Toshniwal has assumed complete ownership of our shares in Pentagon Stock Brokers, subject to regulatory approvals.”
"Around January this year,” Mahavir Lunawat says, “we came to know about the fraud and informed the exchanges. Since most of the clients were there because of our names, we paid all their money from our internal resources and then decided to file a complaint with the Police."
Echoing the same, Ms Lunawat, who is director of Pentagon Stock Brokers says, “After knowing the financial mismanagement and fraud worth about Rs40 crore, I immediately came on board (of Pentagon) on the request of aggrieved parties and salvaged the entire situation. By April-May, we repaid dues of about Rs20 crore to around 25 clients, lenders and clearing members and all non-compliances were made good. Ultimately, we have now taken over supervision of the management of broking activities from Toshniwals and achieved the compliance level to own standards.”
Moneylife also tried contacting the Toshniwals. However, there was no response.
According to data from National Stock Exchange (NSE)
, Pentagon Stock Brokers was formerly known as Pantomath Stock Brokers Pvt Ltd. As of 28 September 2021, the data shows, Mahavir Prasad Toshniwal and Deepa Toshniwal as designated directors of brokerage. Madhu Lunawat, Subhashchandra Vishwakarma, Kundan Lal Lunawat and Jignesh Lathigra are other directors of Pentagon Stock Brokers.
On BSE, however, all four, Ms Toshniwal, Mr Vishwakarma, Kundan Lal Lunawat and Mr Lathigra are shown as designated directors.
Ms Lunawat says, “We wanted to invest in a broking company and we entered into an agreement with Mr Toshniwal, who is CA and company secretary (CS) as he possessed vast experience in stockbroking for more than 20 years. The arrangement was that a company from our (Lunawat) group was identified, which was named Pantomath Stock Brokers, and is now known as Pentagon Stock Brokers. Pentagon Stock Brokers was intended to do business as a ‘market maker’, a depository participant and stockbroking dealing for clients. Many clients were referred by us to Pentagon and have availed of stockbroking and depository services in Pentagon on account of our long-standing business reputation.”
During 2020-21, NSE has levied a monetary penalty of Rs5,000 on the broker.
According to the data available on the exchanges, Pantomath Capital Advisors is shown as an associate company of the same group. NSE also lists Pantomath Fund Managers LLP as an associate company of Pentagon Stock Brokers with a disclaimer, which says, "Certain information displayed here is as updated by the member with NSE and available in NSE records."