sebi
The Securities and Exchange Board of India (SEBI) conducted an investigation into an unusual 19.9% increase in the Net Asset Value (NAV) of JM Financial Mutual Fund's debt schemes, triggered by the sale of defaulted securities from Dewan Housing Finance Corporation Ltd. The investigation indicated that significant individuals associated with the fund, including its CEO and relatives, made investments in those schemes just before the NAV adjustment, leading to allegations of unfair trade practices in violation of SEBI regulations due to the reliance on unpublished information.
Subsequently, SEBI's adjudicating officer concluded that the mutual fund failed to adequately inform investors about critical developments, which led to actions against several parties involved.
After considering the case's particulars and utilizing powers under Section 15-I of the SEBI Act and Rule 5 of the Adjudication Rules, SEBI imposed penalties as follows:
| Name of Noticee | Violation | Penalty Provision | Amount (in Rs.) |
|---|---|---|---|
| Noticee No. 1 (Bhanu Katoch) | Regulations 3(a), 4(1) and 4(2)(q) of PFUTP Regulations and Section 12A(e) of SEBI Act | Section 15HA of SEBI Act | Rs. 1,00,00,000 (One Crore) |
| Clause E(3)(d) of SEBI Circular dated November 17, 2016 | Section 15HB of SEBI Act | Rs. 10,00,000 (Ten Lakhs) | |
| Noticee No. 2 (Swarn Lata Katoch) | Regulations 3(a), 4(1) and 4(2)(q) of PFUTP Regulations and Section 12A(e) of SEBI Act | Section 15HA of SEBI Act | Rs. 14,00,000 (Fourteen Lakhs) |
| Clause E(3)(d) of SEBI Circular dated November 17, 2016 | Section 15HB of SEBI Act | Rs. 3,00,000 (Three Lakhs) | |
| Noticee No. 3 (Sharika Kher) | Regulations 3(a), 4(1) and 4(2)(q) of PFUTP Regulations and Section 12A(e) of SEBI Act | Section 15HA of SEBI Act | Rs. 6,00,000 (Six Lakhs) |
| Clause E(3)(d) of SEBI Circular dated November 17, 2016 | Section 15HB of SEBI Act | Rs. 2,00,000 (Two Lakhs) | |
| Noticee No. 4 (Deepen Doshi) | Regulations 3(a), 4(1) and 4(2)(q) of PFUTP Regulations and Section 12A(e) of SEBI Act | Section 15HA of SEBI Act | Rs. 17,00,000 (Seventeen Lakhs) |
| Clause E(3)(d) of SEBI Circular dated November 17, 2016 | Section 15HB of SEBI Act | Rs. 5,00,000 (Five Lakhs) | |
| Noticee No. 5 (Aruna Doshi) | Regulations 3(a), 4(1) and 4(2)(q) of PFUTP Regulations and Section 12A(e) of SEBI Act | Section 15HA of SEBI Act | Rs. 7,00,000 (Seven Lakhs) |
| Clause E(3)(d) of SEBI Circular dated November 17, 2016 | Section 15HB of SEBI Act | Rs. 2,00,000 (Two Lakhs) | |
| Noticee No. 6 (JM Financial Asset Management) | SEBI Circular dated November 17, 2016 | Section 15E of SEBI Act | Rs. 25,00,000 (Twenty Five Lakhs) |
| Clause 2 of Fifth Schedule to MF Regulations | |||
| Noticee No. 7 (JM Financial Trustee Company) | Clause 2 of Fifth Schedule to MF Regulations | Section 15HB of SEBI Act | Rs. 10,00,000 (Ten Lakhs) |
Initial Findings: SEBI received news reports on July 9, 2020, about unusual NAV spikes for several debt funds, including JM Low Duration Fund, attributed primarily to the sale of defaulted DHFL securities, which were valued at 'Nil' prior to the sale.
Asset Sales: The concerned mutual fund held defaulted DHFL securities that were sold on July 6, 2020, yielding about Rs. 11.18 crores across multiple funds.
Investor Actions: During a crucial period (June 23, 2020, to July 3, 2020), various individuals linked to the fund made significant investments in these schemes.
Regulatory Compliance: Despite the regulatory framework encouraging transparency and preventing insider trading, the involved parties failed to notify investors about critical changes affecting the valuation of their investments.
The alleged actions of Noticees No. 1 to 5—investing in debt schemes with knowledge of forthcoming valuation changes—constituted violations of SEBI regulations. Noticee Nos. 6 and 7 also failed in their duty to provide timely information to the investors, exacerbating the situation. The penalties serve both as a deterrent and an enforcement of the regulatory framework aimed at ensuring fair and transparent trading practices in Indian securities markets. The specific monetary penalties reflect the serious nature of these violations and the need for adherence to regulatory standards.