After reading Sucheta Dalal's article I feel like having viewed a good crime thriller in a lavish multiplex. It's a fact and not a story where the guilty always escape undetected and every time his employer (read - brokerage firm) goes all the way to protect him. And what does the regulator Securities and Exchange Board of India (SEBI) do? Nothing.
Since 2016, SEBI has issued multiple circulars to strengthen compliance and reporting requirements for brokers. In 2018, rules were framed to prevent unauthorised trading by stockbrokers and set up an early warning system. Yet, we have 32 broker failures over 2.5 years at the National Stock Exchange (NSE) and an unending list of unreported stories. Two have been discussed by the author.
Brokers have used the lock-down period to loot people with well-laid traps backed by the semblance of all regulatory compliances. They ensured technical compliance with all SEBI regulations pertaining to margin and ledger statements, emails and SMS messages.
A brokerage firm is not even a bank; yet, it has the audacity to wrest the extraordinary power to illegally freeze the demat accounts of family members and lock up their lifetime investments. All because the grievance redressal in India is poor and as good as non-existent and our courts and regulators have failed to ever award punitive damages to victims.
In another case the broker after violating SEBI’s guidelines began a criminal cover-up to avoid the loss of nearly Rs 7 cr that the firm would need to write off. The firm was mopping up huge brokerage income from these trades. More importantly, SEBI has no concept of a family account; the broker’s action was illegal and as good as highway robbery. The broker had no consent to even use the son’s shares as collateral for the loan to their mother or liquidate them to recoup losses.
To cut a long story short, the brokerage firm, instead of sacking the guilty employee, defended his action. In all, the broker got the 82-year-old mother to execute over 2,000 derivatives trades worth a mind-boggling Rs 340 cr between April 2020 and March 2021, leading to a loss of Rs 2 cr. The story shows that the employee’s actions were fully backed by the organisation which defended fraud, forgery and theft.
What happens next? The broker can continue to fight and seek arbitration. Since the amount is large, it will be examined by NSE and escalated to SEBI. On paper, the regulator has the power to search, seize, interrogate, raid and punish the broker. Will it act? So far, in the past 20 years, no SEBI chairman has woken up on behalf of investors.
To be continued
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