The Securities and Exchange Board of India (SEBI) has warned Nuvama Wealth and Investment, formerly known as Edelweiss Broking, to be careful and diligent in their conduct of business. SEBI instructed the company to ensure suspicious transactions are reported in time. The regulator gave the warning as part of an order issued with respect to allegations of violating code of conduct regulations dating back to 2014. SEBI’s investigation revealed that shares of 14 listed companies were acquired in the name of 26 bogus and non-existent entities through transfer of stolen or counterfeit physical shares. The said shares were subsequently dematerialized in the accounts of these 26 bogus entities.
The regulator observed that Nuvama Wealth allegedly failed to exercise due diligence while dealing with a client named Yatin Vasantrai Parekh and violated code of conduct regulations. A designated authority appointed to investigate further into the issue said that certain transactions entered into by Parekh were suspicious and should have been reported by Nuvama. On the grounds of not adhering to regulations, the designated authority recommended that Nuvama Wealth’s certificate registration as a broker be suspended for three months.
Despite the recommendation, Nuvama made its own submissions in defense to prove there had been no breach of norms. The regulator, after considering the investigations, submissions, and explanations given by Nuvama, felt that suspension of registration would not be appropriate. While there was a mismatch between the annual income of Parekh and his trading turnover, the regulator said that only a small number of transactions were under consideration and that Nuvama Wealth should have abided by the reporting obligations. The Executive Director of SEBI issued a regulatory censure to the broking firm saying that a three months’ suspension at this point of time would not be commensurate with the violation committed by the noticee.
In conclusion, the SEBI has warned Nuvama Wealth and Investment to conduct their businesses diligently and ensure that suspicious transactions are reported on time. Although the firm failed to exercise due diligence, only a small number of transactions were under consideration. Therefore, the provision of a censure by the regulator, instead of a three months’ suspension, would be reasonable in this case.
