SEBI Cancels Registration Of LFS Broking And Bars MD For Violating Market Norms
The Securities and Exchange Board of India (SEBI) has revoked the registration of LFS Broking and imposed a five-year ban on its Managing Director, Saiyad Jiyajur Rahaman, from engaging with any registered intermediary.
SEBI's order stated multiple infractions committed by LFS Broking and its MD. The investigation noted that LFS Broking allowed the misuse of its registration certificates in collusion with Rahaman and facilitated the illegal mobilization of funds from investors. Rahaman was found to have overseen transactions totaling Rs 9.3 crore, including transfers to LFS Broking's proprietary trading accounts, which were not in compliance with regulatory norms.
The investigation noted that LFS Broking's registrations as a stockbroker, portfolio manager, depository participant, and research analyst were misused to promote unregistered entities such as LFS-PMS and MOL Commodities. These entities collected sums from investors under false pretenses.
SEBI referred to the decision of the Supreme Court in Sunil Bharti Mittal vs. CBI. In this judgment, the Supreme Court noted the concept of "alter ego” and held that the actions and intent of individuals controlling a corporate entity can be imputed to the company itself. This principle establishes that if those managing the affairs of a company commit offenses with criminal intent, their culpability extends to the corporation they represent.
SEBI referred to "fit and proper" criteria mandated under SEBI regulations, which require intermediaries to maintain integrity, ethical conduct, and fairness in their operations. It referred to the decision of the SAT in Jermyn Capital vs. SEBI (2007 74 SCL 246 SAT) to highlight the broad scope of the "fit and proper" criteria for intermediaries. The SAT in this case stressed the importance of reputation, character, and financial integrity in assessing the suitability of an entity for registration and continued operation within the securities market. The SAT held that a regulator like SEBI has the discretion to consider various factors, including past conduct and associations, to maintain the integrity and trustworthiness of the market.
The investigation also revealed lapses in governance at LFS Broking, where regulatory certificates were publicly displayed to mislead investors about the legitimacy of investment schemes offered by associated entities. Despite regulatory warnings and inquiries, LFS Broking failed to provide adequate explanations or evidence to justify its actions.