The Securities and Exchange Board of India (Sebi) on September 14, 2023 took stern action against an unregistered Ahmedabad-based investment advisory firm, 4W Wealth Management Pvt. Ltd, on account of providing misleading stock advises.
The Sebi order came following a complaint filed in 2016 by one Yogesh Kumar, who had alleged fraudulent practices by the firm.
Allegations Against 4W Wealth Management Pvt. Ltd.
Kumar said in his complaint that he was lured into trying out their equity trading services on a trial basis for two days. After accepting this proposal, Kumar received three trading tips from the firm. Two of these tips resulted in profits, while one remained without any gain or loss.
According to the complainant, the situation took a drastic turn after Kumar subscribed to their services after being forced to do so. Despite the initial success, the tips provided after he took the subscription never translated into profits, but caused him a loss of Rs. 15,000.
Unregistered Advisory Services
Sebi found in its investigation that the payment made by Kumar was indeed for availing investment advisory products and services, as advertised on 4W Wealth Management’s website, www.4wwealthmanagement.com, which is currently not active.
Sebi further concluded that the firm didn’t have the necessary registration to act as an investment advisor. Further scrutiny of the firm’s bank statements also uncovered numerous similar credits from various individual investors. These credits were directed towards availing different investment advisory services, aligning with the offerings promoted on the firm’s website.
Sebi's Order
Based on the findings and the complaint, Sebi concluded that 4W Wealth Management Pvt. Ltd., including its directors, had been providing investment advisory services without the mandatory registration from Sebi. This was in direct violation of Section 12(1) of the Sebi Act and Regulation 3(1) of the Investment Advisers Regulations.
In response to the violations, Sebi passed the following order.
1. Refund of Advisory Fees: Directors of 4W Wealth Management Pvt. Ltd. are ordered to refund the advisory fees received by the firm from its clients.
2. Public Notice For Refunds: The directors are also ordered to publish a public notice in two national dailies (one English and one Hindi) and one local daily with significant circulation outlining the order and provide details for clients seeking refunds. The notice must be published within 15 days from the September 14, 2023 order by Sebi.
3. Refund Claims: The directors are also required to accept refund claims and requests for a period of three months from the date of the public notice. Any remaining advisory fees that they have received so far, but unclaimed after four months from the public notice date, must be placed in a dedicated escrow account. This account shall be maintained for one year and used exclusively for client refunds. After one year, any remaining funds will be transferred to Sebi’s Investors Protection and Education Fund.
What Should Investors Do?
Investors should verify the registration status of advisory firms to protect themselves from potential misconduct. Sebi’s Investment Advisers Regulations provides for the minimum professional qualification and prescribes mandatory net-worth requirement.
Non-individual applicant must have a net worth of not less than Rs. 50 lakh. Further, it inter- alia provides for disclosures of any conflict of interest, risk profiling of clients, maintenance of records related to client assessments, and the suitability of advice.
Investors should also seek recommendations from friends and peers, do background research, and scrutinise an advisor’s credentials and fees before choosing an investment advisor. In the initial meetings, clients should ask advisors on their fiduciary status, revenue sources, services, and clientele.
