JM Financial AMC, Six Other Entities Fined By SEBI For Flouting Norms

The Securities And Exchange Board of India has imposed a penalty amounting to Rs 2 crore on seven entities, one of which is JM Financial Asset Management Ltd. and Bhanu Katoch, its trustee and former chief executive officer, for flouting regulatory norms.

According to SEBI's order, the fine needs to be paid in 45 days.

Individually, a fine of Rs 25 lakh was levied on JM Financial Asset Management, Rs 10 lakh on JM Financial Trustee Co., Rs 1.1 crore on Bhanu Katoch, Rs 17 lakh on his mother Swarn Lata Katoch, and Rs 8 lakh on his wife Sharika Kher.

Additionally, the markets regulator levied a fine of Rs 22 lakh on Deepen Doshi, who was head of institutional sales at JM Financial Asset Management during the violation, and Rs 9 lakh on his mother Aruna Doshi.

In its ruling, SEBI stated that five individuals invested in JM Financial Mutual Fund schemes, which held defaulted Dewan Housing Finance Corp. securities, prior to a change in valuation. This action was deemed as unfair trading due to the use of unpublished information.

Additionally, their investments were made before informing unitholders, violating SEBI regulations and the AMC's policy on employee investments.

Through this act, these five persons made a notional gain of over Rs 1 crore collectively.

SEBI noted that Bhanu Katoch and Deepen Doshi (named as Noticee No. 1 and Noticee No. 4 respectively in their order) held important positions as CEO and Head of Institutional Sales, respectively, during the examination period. And hence, they were privy to non-public material information regarding the impending sale of defaulted securities of DHFL.

"However, Noticee Nos. 1 and 4, by putting their interests over the interests of unitholders, have misused their positions and taken undue benefits out of the same," SEBI said, in its 86-page order passed on Wednesday.

Further, the regulator said that JM Financial Asset Management and JM Financial Trustee Co. were responsible for promptly and accurately informing all unitholders about the schemes' general affairs, including the reasons for the net asset value increase, but failed to do so in a timely manner.

SEBI said that JM Financial Asset Management and JM Financial Trustee cannot abdicate their responsibility of disclosing to the investors at large, by merely averring that the sale of defaulted securities had a positive impact on the NAV.

"No doubt Noticee Nos. 6 (JM Financial Asset Management) and 7 (JM Financial Trustee Company) had disclosed relevant information in the annual report for FY21 regarding the sale of defaulted securities, but the fact remains that the said annual report was issued on April 10, 2021, i.e. almost nine months after the sale of defaulted securities," SEBI said.

The order came after SEBI received a news article in July 2020, reporting an unusual 19.9% increase in the NAV of JM Low Duration Fund and other debt funds. This jump was mainly due to the sale of defaulted securities from DHFL, which had matured in 2019.

A SEBI circular dated June 23, 2020, allowed transactions in such matured downgraded securities, enabling the sale. Since these securities had a 'Nil' valuation, their sale value was entirely considered a gain, causing the NAV to rise.

(With Inputs From PTI)