Investment Advisory through SMS

Sharda Balaji
Sharda Balaji, Founder
Posted on Mon, 26 August 2013

Securities and Exchange Board of India (SEBI) in a recent ad-interim ex-parte order, debarred two individuals -  Mr. Imtiyaz Hanif Khanda and Mr. Vali Mamad Habib Ghaniwala, from providing unauthorized investment advisory and portfolio management services (PMS) via SMS.

SEBI noticed that certain unregistered entities (run and managed by the above individuals) have been offering intraday tips and stock advisory services through Short Message Services (SMSs) via mobile phones. The content being more of a promotional and marketing data, reproduced as below:

If you want to earn daily 5,000 to 75,000 in equity and MCX market with our confirm intraday tips, contact now for sure shot call at xxxxxxxxx

After SEBI’s preliminary investigation, it was found out that the trading tips were provided, subject to such entities receiving money from the end customers in their account. Hence, it was a paid service that these entities were undertaking and were misrepresenting themselves as investment advisors and portfolio managers to the general public at large.

One of these entities even made false claims on their website - regarding their office in various countries, providing portfolio management services. The bank account details too were mentioned on the website of such entities, where the money was to be deposited, before receiving the services.

Interesting fact here being  - all the four alleged entities have accounts in either the same branch or have common addresses, and the numbers used by such entities are in some or the other way connected to Mr. Imtiyaz Hanif Khanda.

It was felt, that the above entities were dealing in securities, in a manner detrimental to the interest of the securities market and they were associated with the securities market in violation of the provisions of the securities laws.

It was held by the Investigation Authority, appointed to look into this matter, that -

“I am of the prima facie view that under a scheme, plan device or artifice, Mr. Imtiyaz Hanif Khanda and Mr. Vali Mamad Habib Ghaniwala are engaged in providing investment advisory services to investors on payment of fees. I prima facie find that the activities of these entities of giving intraday tips, stock specific recommendations, etc. to the investors on a contractual basis on payment of fees falls within the definition of activities of investment advisor as defined under regulation 2(m) of the SEBI (Investment Advisers) Regulations, 2013 (Investment Advisors Regulations) which provides as under:

“2(m) – Investment adviser means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called.

Similarly, claims made by the entities in  regard to they being portfolio managers and providing services in various countries was found to be in contravention of SEBI Act, read with Portfolio Managers Regulations.

Moreover, it has been further decided that the modus operandi of the alleged entities would fall under the ambit of term “fraudulent” under regulation 2(1)(c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.”

After considering all the relevant regulations, it was decided to pass an ad-interim ex-parte order against the entities,

  • Restraining concerned entities from buying, selling or dealing in the securities market, either directly or indirectly, in any manner whatsoever, till further directions-
  • to cease and desist from acting as an investment advisors and portfolio managers and not to solicit or undertake such activities or any other unregistered activity in the securities market, directly or indirectly, in any manner whatsoever;
  • Immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to their investment advisory and portfolio management activities or any unregistered activity in the securities market.

For complete order, please click here.

SMS Cracked, others in pipeline?

This is the first major case where SEBI has used its newly granted powers to access call data records of suspected individuals, to conclude an investigation. It remains to be seen if SEBI can be efficient enough to take action suo-motto on cracking down such unsolicited services, through other web based applications like WhatsApp and the like. Now, SEBI also has the powers to conduct search and seizure operations, among others.

Disclaimer: This is not a legal opinion and should not be construed as one. Please speak with your attorney for any advice.

Dheeraj Khanna, Senior Associate, specializes in structuring businesses and IP.

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