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SEBI has taken major action against the country’s well-known brokerage firm Prabhudas Lilladher. This action has been taken by the company in case of manipulation with clients’ funds. Along with this, the firm has been banned from adding any new client for 7 days.
New Delhi. SEBI has come down heavily on Prabhudas Lilladher, one of the oldest and most prestigious brokerage houses in the country. The market regulator has imposed a 7-day ban on this brokerage. During this period the company will not be able to take any new business. That means SEBI has stopped brokerages from adding new clients. This ban will come into effect from December 15. What came out in SEBI’s investigation report of more than 100 pages clearly shows that the matter was not just a small mismatch or technical mistake. The report shows that serious violations like large-scale shortfall in clients’ funds, wrong margin reporting, non-timely transfer of shares, recovery of brokerage in excess of the prescribed limit from many clients and flagrant violation of various rules were continuously taking place.
The most shocking revelation in SEBI’s investigation was the shortfall found in client funds. During investigation it came to light that the company had a gap of approximately Rs 2.70 crore in client funds. That means the company did not actually have that much money as shown in the records of the system. And it was not just that. According to the report, funds of 1283 clients were not returned at the settlement time. SEBI called it a big threat to the safety of investors and considered it a serious compliance failure. In many cases, clients’ money was found mixed with the company’s operational accounts, which directly falls in the category of regulatory violations.
Wrong margin reporting and overcharging of brokerage also came to light.
SEBI clearly stated in its report that the company had reported wrong margins on several occasions. The amount of margin recovered from clients was shown differently in the reporting. This affects the complete transparency of margin compliance. Similarly, in the cases of many clients, it was found that more brokerage was recovered from them than the SEBI rules. That is, the percentage of brokerage charged was increased, which is a direct payment violation and has a direct impact on the pockets of investors. SEBI has termed this as a “systemic issue”, that is, this irregularity was going on in the company for a long time and not due to any sudden mistake.
Client shares stuck in CUSA, not transferred to demat on time
Investigation also found that shares of many clients were not allowed to reach their demat. He was held on CUSA account. CUSA account is a place where only short term or temporary documents are kept. It is against the rules to hold real shares here. According to the SEBI report, this is a “major violation” as it unnecessarily keeps clients’ shares stuck in the company’s custody, creating the possibility of misuse.
SEBI’s comment
SEBI said that this whole matter is not about any typing error or book-keeping mistake. This is a huge systemic failure in which clients’ money, margins and shares were not managed safely. For this reason, the regulator took the most stringent step and imposed a new business ban of 7 days so that the company improves its systems and sends a message to the market that even the slightest negligence with client funds and shares will not be tolerated.
