Case Overview

This adjudication order arises from a SEBI investigation into trading activities of a client (referred to as 'Client M' or 'Front Runner') of Inventure Growth and Securities Ltd (Noticee 1), suspected of front-running trades of Axis Mutual Fund (the 'Big Client') during the investigation period from April 1, 2020 to March 31, 2022. The client account was opened through Inventure's Authorised Person, Mr. Rushbha Vinay Nisar (Noticee 2), and all trade orders were executed from terminals allocated to this AP.

The principal allegations against the Noticees were:

1. Failure to maintain client order records: Violation of SEBI Circular No. SEBI/HO/MIRSD/DOP1/CIR/P/2018/54 dated March 22, 2018, which requires brokers to maintain evidence of client orders (telephone recordings, emails, etc.) for at least three years.

2. Unauthorized terminal access: The trading terminal (No. 400001313014, Dealer ID '1RN13') was accessed from Dubai, UAE on September 24, 27, and 28, 2021, despite none of the AP's dealers having traveled outside India during the investigation period.

3. Inadequate AP supervision: Inventure failed to conduct proper independent audits of its Authorised Person as required by NSE Circular Ref. No. 37/2019 dated October 18, 2019 and SEBI Circular MIRSD/DR-1/CIR-16/09 dated November 06, 2009.

During the investigation, conflicting claims emerged between Client M (who stated his account was completely handled by the AP) and the AP (who claimed orders were placed by Client M through calls/visits). The broker could not produce any documentary proof of order placement when requested.

The Adjudicating Officer rejected Inventure's technical contention that NSE circulars are not enforceable by SEBI, noting that Regulation 9(b) of SEBI (Stock Brokers) Regulations, 1992 explicitly requires compliance with exchange rules and regulations as a condition of registration.

Final Outcome

The Adjudicating Officer found all three violations established:

1. Record maintenance violation: 140 orders were placed in Client M's account after September 30, 2021 (when COVID relaxations ended), for which no order placement evidence was maintained.

2. Unauthorized access violation: IP geolocation data from iplocation.net showed 12 logins from Dubai across 3 days in September 2021, establishing terminal access from an unauthorized location.

3. Supervision violation: Internal audit reports for FY 2021-22 and FY 2023-24 were undated, signed by the AP himself rather than independent auditors, and failed to cover mandated audit points.

Considering the factors under Section 15J of the SEBI Act, 1992, and noting that no disproportionate gain or investor loss was quantifiable from the available record, a penalty of ₹3,00,000 (Three Lakh Rupees) was imposed on Inventure Growth and Securities Ltd under Section 15HB of the SEBI Act, 1992. The penalty must be paid within 45 days of receipt of the order, failing which SEBI may initiate recovery proceedings.

Topics: SEBI Enforcement, Broker Compliance, Front-running Investigation