SEBI fines SMC Global Securities over lapses in supervising authorised person

New business data points to the fact that SMC Global Securities has been penalised Rs 1 lakh by the Securities and Exchange Board of India (SEBI) for failing to maintain client order records and adequately supervise its authorised person (AP), Amit Lilhare.

According to an adjudication order issued on Thursday, SEBI found that SMC had failed to maintain appropriate pre-trade confirmation records for orders placed by several clients. The broker was additionally found to have failed to adequately supervise Lilhare, who was associated with complaints relating to unauthorised trading and assurances of set returns to clients.

SEBI adjudicating officer Amit Kapoor stated SMC, as a registered intermediary, was under a statutory obligation to comply with applicable regulations.

“The very purpose of the stated regulations is to deter wrong doing and promote ethical conduct in the securities market. As a result, non-compliances/ violations by the Noticee deserves and attracts suitable penalty,” he stated.

Kapoor additionally noted that SMC had been penalised several times earlier for violations of various provisions of the SEBI Act and regulations. 279 complaints in four months

The order stated SMC received 322 complaints relating to unauthorised trading and misappropriation of clients' funds or securities during FY 2024-25. Of these, 279 complaints were received between June and September 2024.

A majority of these complaints related to unauthorised trading and set-return assurances allegedly provided by Lilhare, who operated in the Bhilai and Rajnandgaon regions of Chhattisgarh.

Of 343 active clients mapped to Lilhare, a pattern of set payouts was found in the ledgers of 161 clients. These clients had invested a total of Rs 6.11 crore for set payouts between April 1, 2022 and June 30, 2024, while total set payouts stood at Rs 1.85 crore.

SEBI additionally noted that Lilhare received commission on such set payouts through payments made by clients to his bank accounts or through UPI.

SMC argued that the clients were walk-in clients who placed verbal orders at the AP's office and that Lilhare had produced a visitor register. SEBI rejected the argument, noting that brokers must maintain evidence of client orders, including physical records signed by clients, telephone recordings or emails from authorised email IDs.

Set pay outs and supervision lapses

SEBI stated set monthly pay outs were made to 16 clients in the first week of every month. SMC argued that monthly withdrawals alone could not establish set returns.

That stated, the regulator stated the broker had not provided supporting evidence explaining the pay outs or establishing that requests originated from the clients. The order additionally noted that 99 percent of orders placed by these 16 clients originated from a single dealer ID.

SMC had additionally argued that the SEBI proceedings amounted to duplicity as NSE had initiated proceedings on the same subject matter. The adjudicating officer rejected the argument, holding that Article 20(2)'s protection against double jeopardy applies to criminal proceedings and does not bar regulatory or quasi-judicial proceedings.

The NSE inspection covered April 1, 2022 to June 30, 2024, while the SEBI inspection covered January 1, 2024 to September 30, 2024. The order stated NSE proceedings were disciplinary, while the SEBI proceedings were adjudication proceedings that could result in a monetary penalty.