SEBI Confirms Order Barring Shares Bazaar AIF from Raising Funds

Moneylife Digital Team 05 November 2024

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI), while confirming its directions in an interim order issued on 1 February 2024, barred Shares Bazaar alternative investment fund (AIF) from raising funds. SEBI found that Shares Bazaar Pvt Ltd (SBPL), a registered stockbroker and research analyst, and manager-cum-sponsor of Shares Bazaar AIF, a registered category III AIF, had obtained registration through misrepresentation and concealment of material information. SBPL was found to be operating a Ponzi and multi-level marketing (MLM) scheme to raise funds with assured returns.

According to the SEBI order, SBPL failed to disclose the regulatory actions taken against it, such as a cease and desist order issued by the National Stock Exchange (NSE), NSE's press release and BSE's expulsion order, in the application for registration as an AIF or any subsequent correspondence. Instead, it submitted false declarations stating that there was 'no supervisory or regulatory action against it in the previous five years' and that 'no order was passed against it for violation of securities laws'. Further, all these regulatory actions were taken against SBPL because of money mobilisation by offering assured returns.

"As per SEBI's preliminary examination, SBPL continued to engage in illegal money mobilisation activity even after submission of an undertaking to the contrary dated 26 September 2022 to SEBI. These actions and omissions cast significant doubt on the integrity, honesty, ethical behaviour and character of SBPL. Therefore, I do not find any merit in this submission," Ananth Narayan G, whole-time member (WTM) of SEBI, says in the order.

In May 2022, NSE issued a cease and desist order against SBPL. It was followed by a press release and a legal notice in July 2022 to SBPL for misrepresenting to the public that it was associated with NSE. Further, as per the 'mystery shopping exercise' report by Ernst & Young (EY), SBPL offered advisory services and portfolio management services (PMS) with assured return under the programme - 'Making Millions Financially Free (MMFF Program (2021-25))'.

Taking cognisance of the press release issued by NSE, BSE initiated proceedings against SBPL and, on 30 December 2022, expelled SBPL as a trading member for offering an assured returns scheme, i.e., MMFF.

SEBI observed that these regulatory actions taken against SBPL were not disclosed in the application which was filed on 10 October 2022 or in any subsequent communication with the market regulator. "This pattern of concealment of material information prima facie points to SBPL's dishonest and unethical conduct in obtaining registration as an AIF," it added.

The SEBI WTM says, "The interim order was passed to prevent Shares Bazaar AIF from raising money from investors using a registration that was prima facie obtained through misrepresentation and concealment of material information... I find that the submissions of the entities are insufficient to refute the prima facie conclusions drawn against them in the interim order."

"Consequently, the findings in the Interim Order that SBPL is prima facie, not a 'fit and proper person', and that the entities obtained AIF registration through misrepresentation resulting in prima facie contravention of regulation 3(5) read with Form A, regulation 11(2) and 20(1) read with clause 1(c) of the fourth schedule of the AIF Regulations and regulation 4(f) of AIF Regulations read with clause 3(a) of the schedule II of the SEBI (Intermediaries) Regulations, 2008, stand confirmed," SEBI says.

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