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Anugrah lured investors with returns of 20% per annum (Part-2)
Oct 08, 2020, 07:02 PM IST
Anugrah is a leading stock-broking firm established in 2003. The firm and its associates have always sold high-risk equity-related products to investors. On August 3, 2020, the National Stock Exchange (NSE) slapped a restraining order on Anugrah and disabled its trading rights. Apparently, the broker came under the NSE radar for its dealings in unauthorised derivative advisory services (DAS). As per Moneylife, NSE was extensively investigating OSSI – Anugrah’s sister firm after the India Nivesh fiasco. Under the regulators’ scanner On August 17, the broker took the matter to the Securities Appellate Tribunal (SAT). NSE in its filing with the SAT justified that the DAS was operational since May 2017 and was stopped in 2019. Thereafter, DAS continued via OSSI. NSE also alleged that a sum of INR165 crore was collected through this agency. Thus, in order to prevent further damage to investors, NSE disabled Anugrah’s trading rights, which it stated was necessary. SAT emphasised in its order that the judgment taken by NSE was “too harsh” and that there was “no tethering hurry or urgency” as the services have been operational for quite some time. SAT put a stay on the NSE ruling and directed the broking firm to deposit INR165 crore within two weeks, failing to comply which would lead to withdrawal of its trading rights. In the granted time, the broker could trade in derivatives but was not allowed to add new clients.
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On September 1, since Anugrah did not deposit the aforesaid amount, its trading rights were disabled from all segments of the exchanges. Investors were left stranded and Paresh Kariya was not available to answer their queries. Even a detailed questionnaire sent to him by ET Prime remained unanswered. Some investors are blaming the NSE for not conducting proper audits on the firm. Anugrah, on the other hand, alleges that Edelweiss Custodial Services, which was the clearing firm, sold shares worth INR400 crore belonging to its clients. As per regulations, the clearing member is authorised to liquidate collateral given by the trading member when the latter fails to meet its obligations. These shares were sold as per the prevailing guidelines whenever the broking firm had not been able to meet obligations over the last few months. According to a Moneylife report, ICICI Bank took over the custodial services on July 20. It was Edelweiss prior to that. The back-end work Anugrah was trading in the F&O segment — Nifty and Bank Nifty are the most liquid derivatives in the space. The trading was through individual clients, but these orders were not placed by clients. Brokers can advise their clients on specific stock performances but cannot actively manage and transact in individual client accounts. Clients opened Demat accounts with Anugrah.
They transferred their securities and cash, and also signed the power of attorney (PoA) giving Anugrah the right to pledge securities as margins. While some were direct clients, a few came through Teji Mandi Analytics Pvt. Ltd. In one of the presentations shared with the clients, Teji Mandi assured a stop-loss if there was 7% capital erosion. On the upside, they were given a 14%-18% yearly return on an average, some clients tell ET Prime. Brokers or investment managers are banned from launching products that guarantee returns. Brokers are not allowed to do any advisory service or launch schemes unless they are a mutual fund, PMS or an alternative investment fund. They need to take separate permission to start these schemes. And all products that were run by Anugrah and its associates did not fall under any of the products that come under money-management schemes mentioned by Sebi. “Derivatives advisory falls under registered investment advisors (RIA) and research analyst (RA) licence. Even RIA and RA are not authorised to handle client funds. To trade in derivatives on client money, one needs to be a Sebi-registered Category-III AIF,” explains Prashanth Krishna, founder of Portfolio Yoga. This means all schemes that Paresh Kariya and his firms were running were illegal. But Anugrah was not only ensuring monthly returns but sometimes even exceeded them.
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