Why Don't Stock Market Frauds STOP? Are Frauds Allowed to Happen?

Stock Pathshala

One persistent problem with the Indian stock market is frauds. Sometimes by brokers, sometimes they happen because of promoters and sometimes investors and traders were cheated by SEBI registered investment advisors and research analysts. All these makes it hard to earn profit for a trader or investor. Even some promoters are caught doing stock manipulation. But one thing in all the stock market frauds was common. The soft stand taken by Sebi. So is it fair to say that all the stock market frauds happen due to sebi's negligence ? Sebi says that we regulate every entity registered with it strictly whether it is a broker, exchange or registered research analyst. But there are instances when even registered entities did frauds and Sebi overlooked their actions for a prolonged time. The action happened only when fraud became a big one. For instance, a registered research analyst Manish Goel was caught serving investment advisory to his clients despite holding a licence for a research analyst job. In the case of Manish Goel he was working as an unregistered investment advisor between 2013 and 2016.Sebi issued repeated warnings to him to stop this. In 2016 in a clever move he registered himself as an research analyst with Sebi but still continued running his business as an investment advisor in contravention of SEBI IA/RA regulations. After repeated warnings sebi issued a show cause notice against him and fined ₹60 lakhs. Another curious case is Stallion Asset. It is a registered research analyst firm. Its proprietor Amit Jeswani was fined ₹26 lakhs because he was serving model portfolios to his current and prospective clients and as per SEBI order he did not possess portfolio manager service licence so this was deemed illegal activity. He argued against SEBI case saying we did not know that there is difference between a portfolio manager and research analyst but SEBI overruled this and issued an order against him debarring him from getting any other registration with SEBI for 3 years. But there are numerous cases where sebi did not take any action against unregistered advisories barring a few exceptions saying they are not registered with SEBI so don't fall in Sebi purview. But in Manish Goel vs SEBI in Punjab and Haryana High court SEBI argued that one can not serve as an research analyst without licence and court ruled in favour of SEBI. So as per SEBI one needs a licence to serve as an research analyst or advisor but it hesitates to take any action against thousands of illegal research or advisory firms being run in various cities of India. There are about 2300 research and advisory firms registered with SEBI in India as per SEBI's investment advisory and research analyst regulations. They charge as per sebi's rules and regulations and don't make much but unregistered or illegal advisors and research analysts earn in millions. So due to the lackadaisical attitude of SEBI many registered advisors and research analysts are surrendering their licences. We tried to delve into some cases where registered entities were caught doing wrong and they were penalised by SEBI for the same. But in most cases the penalty was very moderate in comparison to fraud they committed. No exemplary action was taken against them. So why don't sebi go against Unregistered advisory and research analyst firms ? Does it lack power ? No. Does it lack intent ? Yes. Sebi has ample power vide sebi regulations 1992 and other laws enacted by parliament. It can take suo moto action against any wrong doing entity and even can use section 406,120 B and 420 against any wrong doing entity. Stock market is the future of thousands of people who see an opportunity to make a career out of it but such frauds desist them from Participating in it. So, please sebi go against fraudsters irrespective if whether they are registered or unregistered.