2023 (10) TMI 1557 - Board - SEBI

SEBI orders noticees to stop unregistered, fraudulent investment-advisory 'educational' schemes and allows seizure of alleged ill-gotten gains

SEBI Board found that the Noticees operated unregistered and fraudulent investment-advisory activity concealed as 'educational courses,' inducing ... Online/ Offline institutes - Unregistered and fraudulent investment advisory activity - ‘educational courses’/ ‘workshops’ on the website/ apps created on the platform - Payment gateway provided by Bunch for ‘educational courses’ - misleading, soliciting and inducing the investors to deal in the securities market on the basis of investment advice without having the requisite registration / certificate as mandated under the IA Regulations - contravention of section 12(1) of the SEBI Act read with regulation 3(1) of IA Regulations - Whether Noticees have induced / influenced investors to deal in securities through false/ misleading information and indulged in unregistered investment advisory activities under the garb of providing educational training through sale of courses/ workshop services. HELD THAT:- It appears that the Noticees sought to make a quick buck by inducing persons to invest in the securities market making bogus claims and assurances of astronomical profits if trades are executed relying on their advise/ recommendations. Describing such advise/ recommendations as ‘educational courses’ appears to be a futile attempt to whitewash the illegality involved. As noted from the aforementioned bank accounts of the Noticees, there are multiple credit entries which when seen together with the content on the social media posts/ closed groups created on Bunch platform (elaborated earlier in this Order) leads to the prima facie conclusion that the credit entries in the aforesaid bank accounts were in return for the investment advice given by the Noticees to their clients. There is no record of the Noticees having been registered with SEBI as intermediary in any capacity. Thus, prima facie, I conclude that the Noticees are engaged in the business of providing investment advice to persons for consideration without obtaining registration from SEBI in contravention of section 12(1) of the SEBI Act read with regulation 3(1) of IA Regulations. I also prima facie conclude that the Noticees have violated regulations 3 (a)-(d), 4(1), 4(2)(k) & (s) of PFUTP Regulations read with section 12A of the SEBI Act. As per the material available on record, the sale of courses/ offline workshops/ private groups/ social media accounts of Noticees continue to be active as on date and thereby continuing to mislead, induce and solicit money from investors/ clients for their unregistered and fraudulent investment advisory activity. On September 05, 2023, Nasir posted a video on YouTube channel titled Teachers Day Special Gift for All Students | Make Every Week 1 to 2 Lakhs and on September 24, 2023, a video titled The Hero Zero Strategy | Make 1 Lakhs wit 10k Capital was posted on the YouTube Channel. Further, I note that on his twitter (X) profile, Nasir has shared the link of his WhatsApp channel (whatsapp.com/channel/0029Va…) on October 01, 2023. The screenshots from YouTube and WhatsApp channels are provided below. Therefore, the Noticees continue to lure and induce investors to invest in securities market and collect money from them through ‘educational courses’. As per material available on record, monies are being received in the bank accounts at least till the examination period, and the bank accounts and social media channels are still active. The aforesaid prima facie demonstrates that persons may still be lured to deal in the securities market due to the activities of the Noticees which poses a threat to the integrity of the securities market. Interim order - This Order Nasir prima facie is the face of the alleged fraudulent and unregistered investment advisory activity. His sole proprietorship- ‘Baap of Chart’ and the brand recall associated with the same name is central to the allegations made out in this Order. Therefore, it is necessary, in the interest of investors and the integrity of the securities market, for interim directions to be passed against Nasir, not just in his personal capacity but also in his capacity as sole proprietor of ‘Baap of Chart’. Noticee Nos. 1 and 2 i.e. Nasir and Rahul are also both significant shareholders and directors of Golden Syndicate which is the company whose accounts have been credited with fees collected. I am of the view that it is necessary to pass interim directions against Noticee Nos. 1, 2 and 5 whereas a notice to show cause against all the Noticees may be issued for their alleged role in the prima facie fraudulent and unregistered investment advisory activity. Further, as already observed, Noticees have prima facie violated securities laws by engaging in fraudulent and unregistered investment advisory activities, it is imperative to issue directions against all the Noticees to cease and desist from continuing with such violations. Considering that the Noticee Nos. 1, 2 and 5 have wantonly engaged in perpetrating fraudulent activity, I cannot ignore the risk that the said Noticees may divert the alleged unlawful gains before directions for disgorgement / refund, etc., if any, are passed. Further, I note that in his videos/ social media posts on ‘courses’ of BoC, Nasir repeatedly emphasizes on providing access to live trading during his courses. Therefore, non-interference at this stage would result in irreparable injury to interests of the securities market and the investors. Considering the factual matrix of the case and the prima facie conclusion of fraudulent and unregistered investment advisory activities, I am convinced that the balance of convenience lies in passing interim directions against the Noticee Nos. 1, 2 and 5 inter alia for preventing the continuation of any further fraudulent or unregistered activities in the interest of investors, and for impounding and retaining such quantified alleged illegal gains. Thus, in order to protect the interests of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me under sections 11(1), 11(4), 11B and 11D read with section 19 of the SEBI Act, hereby issue by way of this interim ex-parte order. ISSUES PRESENTED AND CONSIDERED 1. Whether the activity of offering paid 'courses', private chat groups and subscription plans coupled with specific buy/sell/hold messages and live market guidance constitutes 'investment advice' and renders the provider an 'investment adviser' within the IA Regulations. 2. Whether the provision of such services for consideration without registration constitutes a contravention of Section 12(1) of the SEBI Act and Regulation 3(1) of the IA Regulations. 3. Whether marketing assurances of 'sureshot', 'guaranteed' or unnaturally high returns, together with selective private recommendations, amount to fraudulent, misleading or unfair trade practices under the PFUTP Regulations and Section 12A of the SEBI Act. 4. Whether disclaimers and labelling the activity as 'educational' can negate the characterisation of the activity as investment advice or shield the provider from regulatory liability. 5. Whether amounts collected through the described channels and credited to specified bank accounts and corporate entities are prima facie proceeds of unregistered/fraudulent investment advisory activity and therefore liable to impoundment as unlawful gains. 6. Whether interim ex parte preventive measures (cease-and-desist, trading/dealing restraint, impounding of proceeds, asset/debit freezes and disclosure/inventory directions) are justified on the prima facie record to protect investors and market integrity. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation as 'Investment Advice' and 'Investment Adviser' Legal framework: Definitions of 'investment advice' and 'investment adviser' under the IA Regulations: investment advice includes advice relating to investing, purchasing, selling or otherwise dealing in securities communicated for the benefit of the client; investment adviser means any person who for consideration is engaged in the business of providing investment advice or holds out as such. Public mass-media advice is excluded if widely available. Precedent treatment: The Order does not rely on or cite external precedents; analysis is based on statutory definitions and factual matrix. Interpretation and reasoning: The provider sold paid courses and subscriptions, created closed paid groups with chat functionality and sent specific actionable buy/sell/hold messages and live-trade guidance to paying subscribers. The features include individualized guidance, specific trade entries/quantities and timing, and profit-assurance statements. The activity was carried out for consideration; payments were routed to accounts controlled by the provider and associated entities. These facts satisfy both limbs of the IA definitions (advice/holding out and consideration). The exclusion for widely available media does not apply to closed, paid groups and directed recommendations. Ratio vs. Obiter: Ratio - Paid, targeted provision of actionable trading recommendations and personalised live guidance constitutes 'investment advice' and the provider so engaged is an 'investment adviser' requiring registration. Obiter - None significant beyond factual conclusions. Conclusion: Prima facie, the activity constitutes investment advice and the provider is an investment adviser under the IA Regulations. Issue 2 - Unregistered Activity in Contravention of SEBI Act and IA Regulations Legal framework: Section 12(1) SEBI Act prohibits dealing as intermediaries (including investment advisers) without SEBI certificate; Regulation 3(1) IA Regulations mandates registration prior to acting as investment adviser. Precedent treatment: No precedents cited; applied statutory requirement to facts. Interpretation and reasoning: The provider was not registered with SEBI in any capacity. Given the prima facie characterisation of the activity as investment advisory and the receipt of consideration documented in bank records and payment-gateway data, the statutory requirement of prior registration was not complied with. Ratio vs. Obiter: Ratio - Acting as an investment adviser for consideration without SEBI registration prima facie contravenes Section 12(1) and Regulation 3(1). Obiter - None. Conclusion: Prima facie contravention of Section 12(1) of SEBI Act read with Regulation 3(1) of the IA Regulations. Issue 3 - Fraudulent, Misleading and Unfair Trade Practices under PFUTP Legal framework: PFUTP Regulations and Section 12A of SEBI Act prohibit manipulative, deceptive, fraudulent or unfair practices; include misrepresentation, reckless statements, dissemination of false or misleading information designed to influence investor decisions and mis-selling. Precedent treatment: None cited; statutory definitions applied to factual record. Interpretation and reasoning: The provider repeatedly advertised high-accuracy strategies (80-95%), 'sureshot' profits, guarantees and refund promises, while private group messages contained specific trading recommendations. Empirical trading records of the provider showed net losses (~INR 2.9 Crore) over the relevant period, contrary to public claims. The mismatch between public assurances and the provider's own trading record, combined with selective private recommendations to paying customers, amounts to reckless/misleading statements and mis-selling of services related to securities. Payment structures (fees, profit sharing) and targeted inducements increase the likelihood that disseminated statements were designed to influence trading decisions. These elements prima facie engage PFUTP provisions including dissemination of misleading advice and mis-selling. Ratio vs. Obiter: Ratio - Marketing and personal dissemination of guaranteed/near-certain returns and specific trade calls to paying clients, when unsupported by the provider's own trading record, prima facie constitute fraudulent, misleading and unfair trade practices under PFUTP. Obiter - The presence of profit-sharing and live-trading access is indicative of advisory character and commercial motive (supporting inference of mis-selling). Conclusion: Prima facie violation of PFUTP Regulations (including provisions prohibiting dissemination of false/misleading information and mis-selling) and Section 12A. Issue 4 - Effect of Disclaimers and 'Educational' Label Legal framework: Substance-over-form approach under securities regulation; statutory definitions determine regulatory character irrespective of labels. Precedent treatment: No precedents cited in the Order. Interpretation and reasoning: Despite disclaimers asserting non-registration and 'educational purpose', the content and delivery (paid closed groups, actionable calls, individualized live support, profit guarantees, contractual refund offers) manifestly amount to advisory services. Disclaimers that are ambiguous or attempt to shift responsibility do not absolve parties from statutory obligations; in fact, admission of non-registration in disclaimers underscores awareness of the need for registration and is inconsistent with a claim of purely educational content. Labeling does not alter the functional reality of advice-for-consideration. Ratio vs. Obiter: Ratio - Disclaimers and labelling as 'educational' do not negate the substantive characterisation of the activity as investment advice when the conduct and content satisfy statutory definitions. Obiter - Ambiguous disclaimers may be probative of consciousness of non-compliance. Conclusion: Disclaimers/'educational' label do not shield the provider from regulatory liability on the prima facie record. Issue 5 - Characterisation of Collected Amounts as Prima Facie Unlawful Gains Legal framework: Powers to impound/disgorge proceeds derived from unlawful activities; assessment of funds received for unregistered/fraudulent activity as proceeds. Precedent treatment: None relied upon; factual accounting from payment gateways and bank statements used. Interpretation and reasoning: Payment-gateway records, beneficiary bank accounts and UPI linkage show substantial sums credited to accounts controlled by the provider and associated corporate/individual recipients. Amounts collected through the platform and UPI/IMPS mapped closely to prices of offered courses/strategies. Given the prima facie finding that those courses constituted unregistered and fraudulent advisory services, amounts collected therefrom constitute prima facie unlawful gains subject to impoundment. The Order quantifies the amounts based on available records (aggregate figure identified for the interim period) and treats them as jointly and severally attributable to key recipients. Ratio vs. Obiter: Ratio - Funds received in consideration of unregistered and prima facie fraudulent investment advisory activities constitute unlawful gains and are prima facie liable to impoundment pending further adjudication. Obiter - Allocation among multiple recipients may be inferred from account records and corporate links. Conclusion: Prima facie unlawful gains identified and quantified from the operative period; justifies interim impoundment measures as to specific accounts and persons. Issue 6 - Necessity and Proportionality of Interim Directions Legal framework: SEBI's statutory mandate to protect investors and market integrity; power to issue interim ex parte directions to prevent continuation of unlawful activity and prejudice pending final adjudication. Precedent treatment: Not cited; applied statutory powers (sections enabling interim relief) to factual urgency. Interpretation and reasoning: The record shows ongoing solicitation and receipt of funds post-investigation period, active social media channels and direct inducements to invest. There is real risk of dissipation of proceeds and continued investor harm if immediate measures are not taken. The balance of convenience weighs in favour of interim restraints (cease-and-desist, trading/dealing prohibition, escrow/impoundment, bank/depositor/depository freezes, asset disclosure and withdrawal of public solicitations) targeted at the principal actors and primary recipient accounts. Directions are proportionate as they are interim, specifically tied to quantified prima facie proceeds, and preserve funds for potential disgorgement/refund while allowing closure of pre-existing trading obligations within a limited timeframe. Ratio vs. Obiter: Ratio - On a prima facie showing of unregistered and fraudulent advisory activity with ongoing solicitation and identifiable proceeds, interim preventive and preservation measures are justified and proportionate to protect investors and market integrity. Obiter - Selection of specific recipients for interim measures rests on account linkages and active roles demonstrated in the record. Conclusion: Interim ex parte directions (cease-and-desist, restraint from dealing, impoundment/escrow, asset/debit freezes, disclosure and withdrawal of public solicitations) are prima facie justified and proportionate pending final adjudication.