Sebi fines JM Financial, former CEO for breaking rules: Rediff Moneynews

New Delhi, Aug 1 (PTI) Capital markets regulator Sebi has imposed a total penalty of Rs 2 crore on seven entities, including JM Financial Asset Management Ltd, its custodian and former CEO Bhanu Katocha, for flouting regulatory norms.

As per the Securities and Exchange Board of India (Sebi) order, the fine has to be paid within 45 days.

Individually, a fine of Rs 25 lakh was imposed on JM Financial Asset Management, Rs 10 lakh on JM Financial Trustee Company, Rs 1.1 crore on Bhanu Katoch, Rs 17 lakh on his mother Swarn Lata Katoch and Rs 8 lakh on his wife Sharika Kher.

Additionally, the regulator imposed a fine of Rs 22 lakh on Deepen Doshi, who was the head of institutional sales at JM Financial Asset Management during the violation, and Rs 9 lakh on his mother Aruna Doshi.

In its order, Sebi noted that the five individuals had invested in certain JM Financial Mutual Fund schemes by holding defaulted securities of Dewan Housing Finance Corporation Ltd (DHFL) before repricing, using unpublished information. This was considered as unfair trading.

Further, the investments were made before informing the unit holders, which is a violation of SEBI regulations and AMC’s policy on employee investment.

This Act resulted in five people making a combined theoretical profit of over Rs 1 crore.

“Notice No. 1 (Bhanu Katoch) and 4 (Deepen Doshi) held important positions as CEO and Head of Institutional Sales respectively during the period of review. In view of their positions, they had access to non-public information material to the impending sale of outstanding securities of DHFL.

“However, Noticee Nos. 1 and 4, by giving priority to their own interests over the interests of the unitholders, have misused their positions and have derived undue benefit therefrom,” Sebi said in its 86-page order issued on Wednesday.

The regulator further found that JM Financial Asset Management and JM Financial Trustee Company had an obligation to promptly and accurately inform all unitholders about general matters of the schemes, including the reasons for the increase in the net asset value, but failed to do so in a timely manner.

Sebi said that JM Financial Asset Management and JM Financial Trustee Company cannot avoid the obligation to inform the general investor public by merely stating that the sale of outstanding securities had a positive impact on the net asset value (NAV).

“No doubt, Notification Nos. 6 (JM Financial Asset Management) and 7 (JM Financial Trustee Company) have disclosed material information in the annual report for the fiscal year 2020-21 regarding sale of outstanding securities, but the fact remains that the said annual report was issued on April 10, 2021, i.e. almost nine months after the sale of outstanding securities,” Sebi added.

The order comes after Sebi received a paper in July 2020 reporting a remarkable 19.9% ​​jump in the net asset value (NAV) of JM Low Duration Fund and other debt funds. The jump was mainly due to the sale of securities from DHFL that matured in 2019.

Sebi’s circular dated June 23, 2020 permitted transactions in such mature, debased securities by allowing sale. Since these securities were valued at ‘zero’, their sale value was considered as profit, resulting in increase in the net asset value.