Rs8 Lakh Penalty on Beacon Trusteeship and SKI Capital for Failure in Due Diligence in Shares Bazaar AIF Registration
Moneylife Digital Team 29 November 2024
Market regulator Securities and Exchange Board of India (SEBI) has imposed penalties of Rs8 lakh on Beacon Trusteeship Ltd (BTL) and SKI Capital Services Ltd (SKI) for failing to exercise adequate due diligence and for submitting incorrect information during the registration process of Shares Bazaar Alternative Investment Fund (SBAIF).
 
In an order, SEBI's adjudicating officer, Barnali Mukherjee, says, "Beacon Trusteeship was under a statutory obligation to comply with the AIF Regulations and SEBI circulars, which it failed to do. Similarly, a merchant banker plays a crucial role in the development of the securities market, particularly when issuing a due diligence certificate, which is relied upon by the regulator. It is essential that every merchant banker follows the relevant regulations, SEBI circulars and guidelines."
 
SEBI initiated the investigation to determine whether the two entities violated provisions under the SEBI (Alternative Investment Funds) Regulations, 2012, and the SEBI (Merchant Bankers) Regulations, 1992, along with associated circulars.
 
Shares Bazaar AIF, a registered alternative investment fund, filed its application on 12 October 2022. During the process, SEBI required the disclosure of the disciplinary history of its fund manager and sponsor, Shares Bazaar Pvt Ltd (SBPL), in the private placement memorandum (PPM). However, Shares Bazaar, a trading member with the BSE, was expelled on 30 December 2022, a fact that was not disclosed in the PPM submitted to SEBI on 29 March 2023.
 
As the debenture trustee, Beacon Trusteeship submitted undertakings to SEBI in November 2022 and March 2023, confirming the AIF's sponsor and manager were 'fit and proper persons'. These undertakings, however, did not mention SBPL's expulsion by BSE.
 
SEBI found that Beacon Trusteeship relied on a due diligence certificate from SKI Capital Services, dated 27 March 2023, which also failed to disclose this critical information. As a merchant banker, SKI Capital Services was responsible for verifying disclosures in the PPM but neglected to independently check SBPL's disciplinary history, despite a request from SEBI in December 2022 for an update.
 
These lapses contributed to approving Shares Bazaar AIF's registration by SEBI on 27 April 2023. SEBI later concluded that both Beacon Trusteeship and SKI Capital Services failed to meet the required service and due diligence standards.
 
Beacon Trusteeship was penalised for not independently verifying the information and for submitting incorrect undertakings. SKI Capital Services was penalised for failing to check the fund manager's and sponsor's disciplinary history before issuing the due diligence certificate.
 
In its defence, Beacon Trusteeship argued that its due diligence was based on available documents, including SBPL's financial statements and audit reports, which showed no revenue as of 31 March 2022. SKI Capital Services contended that BSE's sanctions were internal to the exchange's bye-laws and did not directly align with SEBI's disclosure requirements. 
 
However, SEBI found these arguments insufficient and emphasised the responsibility of trustees and merchant bankers to ensure the accuracy and completeness of disclosures.
 
As a result, Beacon Trusteeship was fined Rs5 lakh, and SKI Capital Services was fined Rs3 lakh.
 
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