BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: S. RAMAN, WHOLE TIME MEMBER

Transcription

1 WTM/SR/SEBI/MIRSD/ 22 /03 /2016 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: S. RAMAN, WHOLE TIME MEMBER Under Section 11(1), 11(4), 11B and 11D of the Securities and Exchange Board of India Act, 1992 against Lee Capital Services Private Limited {(PAN: AABCL1849A); Sub-Broker of Cochin Stock Brokers Limited affiliated to NSE (Reg.No: INS ) and BSE (Reg.No: INS } and its Directors Mr. Santhosh Kumar K. L. (PAN: AMOPK1159Q) and Mr. Kunjiraman Pillai (PAN: ANCPP3867H). 1. Lee Capital Services Private Limited ( Lee Capital") was registered with Securities and Exchange Board of India ("SEBI") September 15, 2005 as a Stock broker having registration number INB and a member of erstwhile Cochin Stock Exchange Limited ("CSE"). After the formation of Cochin Stock Brokers Limited ( CSBL ) as subsidiary of CSE and CSBL becoming a registered stock broker of National Stock Exchange Limited ( NSE ) and BSE Limited ("BSE ) in permitted segments, Lee Capital became a registered Sub-broker of NSE (Registration number INS ) and BSE (Registration number INS ) on March 29, 2007(BSE) and May 17, 2007(BSE). 2. SEBI received several investor complaints (approx. 1000) during the year 2013 against Lee Capital, inter alia, alleging the following: i. Collected funds from public in the guise of Portfolio Management Schemes ("PMS"); ii. Offered schemes with hefty commissions to the existing investors for bringing new clients; iii. Promised returns in the range of 36% to 60% per annum through its various investment schemes; iv. Misuse of SEBI Registration to canvass investors for unauthorized PMS and Gold Trading schemes; Page 1 of 18

2 v. Carrying out Fund based activities unrelated to the securities market which were outside the scope of activities of a SEBI registered Sub broker. vi. Collected more than Rs. 300 crores from the investors and not repaid as promised. 3. Upon preliminary enquiry by SEBI, it was observed that Lee Capital by misusing the certificate of registration granted to act as a Stock broker and Sub-broker, launched/sponsored various schemes and collected money from members of the pubic promising them unrealistic returns without making any genuine investments. It was also observed that Lee Capital used to pay the profit share to the existing investors out of the funds collected from new investors and also made misrepresentations by making fraudulent and deceitful claims. 4. As the aforesaid activities of Lee Capital were prima facie in violation of provisions of SEBI Act, 1992 ("SEBI Act"), Securities Contracts (Regulation) Rules, 1957 ("SCRR"), the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 ("Brokers Regulations"), the SEBI (Portfolio Managers) Regulations, 1993 ( PMS Regulations ) and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 ( PFUTP Regulations ), SEBI passed an ad interim ex-parte order dated December 19, 2013 (' ex-parte order') with the following directions: a) direct Lee Capital Services Private Limited to close, terminate, and wind up all its schemes and to refund the monies collected from the investors in its schemes along with income, profits or returns promised to them under its schemes or interest at the rate of 10% per annum, whichever is higher, from the date of investment till the date of refund, within a period of three months from the date of this order and submit a winding up and repayment report to SEBI. b) Lee Capital and its directors were restrained from buying, selling or dealing in the securities market, either directly or indirectly, in any manner whatsoever, till further directions. In addition to the above, Lee Capital and its directors were also directed: c) to cease and desist from unauthorized activities as noted above and not to solicit or undertake such activities or any other unregistered activity in the securities market, directly or indirectly, in any manner whatsoever; Page 2 of 18

3 d) to immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to those schemes/activities or any unregistered activity in the securities market. 5. The said ex-parte order provided that Lee Capital and its Directors may file their objections, if any, within twenty one (21) days from the date of receipt of the said interim order. The order further provided that they may avail an opportunity of personal hearing before SEBI on a date and time to be fixed on a specific request in writing. 6. Vide separate letters dated December 26, 2013, the ex-parte order was sent to Lee Capital and its Directors. However, the same were returned undelivered by the postal authorities with remarks 'addressee left, present address unknown, return to sender'. SEBI also issued a press release on December 27, 2013 about the ex-parte order dated Dec 19, 2013 and published the same in various newspapers As per the information furnished by the Kerala Police, they have received complaints against Lee Capital with regard to the fraud committed by it to the tune of Rs. 80 crores (approx.) and they have registered a case against Lee Capital and sealed its offices on July 15, Since one of the two directors of Lee Capital viz., Mr. Kunjiraman Pillai is in judicial custody, a copy of the order was sent to him vide letter dated March 19, 2014 through the Superintendent of District jail, Poojapura Jail, Thiruvananthapuram. 7. Subsequently, SEBI advised CSE to serve the copy of the order to Lee Capital and its Directors. CSE vide its letter dated May 28, 2014 informed that a copy of the ex-parte order was affixed at the conspicuous premises of the address of Lee Capital and its Directors viz., Mr. Santosh Kumar K.L, and Mr Kunjiraman Pillai on May and May 20, 2014 respectively. The ex-parte order has also been uploaded in the SEBI website i.e. However, it is noted that Lee Capital and its Directors neither complied with the SEBI directions nor filed any reply till date. 8. Thereafter, vide hearing notice dated November 02, 2015 an opportunity of personal hearing before me was granted to Lee Capital and its Directors (hereinafter collectively referred as Page 3 of 18

4 the Noticees ) on December 14, It is noted that the notices were returned undelivered by the postal authorities with the remarks 'addressee left'. In view of the same, SEBI advised CSBL to serve a copy of the hearing notice. CSBL, vide letter dated November 24, 2015 informed that a copy of the hearing notice was affixed at the office address of Lee Capital and also the residential addresses of the Directors on November 12, Despite the same, neither the Noticees nor their authorized representative attended the personal hearing or filed any reply till date. 9. Considering that no communication has been received from the Noticees, despite sufficient opportunities granted to them and also considering the fact that the Noticees failed to avail the opportunity of personal hearing, I am of the view that the Noticees are deliberately avoiding the communications from SEBI and have failed to cooperate with SEBI. In view of the same, I am constrained to proceed on the basis of the material available on record. 10. Before dealing with the charges levelled against the Noticees, the relevant legal provisions, the contravention of which have been alleged in the instant case are reproduced hereunder:- SEBI Act, 1992 Section 12(1) "No stock-broker, sub- broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act." Section 12A of the SEBI Act- Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. "12A. No person shall directly or indirectly (a) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made there under; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; Page 4 of 18

5 (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;" Regulation 3 SEBI (Portfolio Managers) Regulations, 1993 "No person shall act as portfolio manager unless he holds a certificate granted by the Board under these regulations:." The Securities Contracts (Regulation) Rules, 1957 "8 (3) No person who is a member at the time of application for recognition or subsequently admitted as a member shall continue as such if.. (f) he engages either as principal or employee in any business other than that of securities or commodity derivatives except as a broker or agent not involving any personal financial liability " PFUTP Regulations, 2003 Definition of fraud Regulation 2(1)(c). (c) fraud includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include (1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment; (2) a suggestion as to a fact which is not true by one who does not believe it to be true; (3) an active concealment of a fact by a person having knowledge or belief of the fact; (4) a promise made without any intention of performing it; (5) a representation made in a reckless and careless manner whether it be true or false; (6) any such act or omission as any other law specifically declares to be fraudulent; (7) deceptive behaviour by a person depriving another of informed consent or full participation; (8) a false statement made without reasonable ground for believing it to be true; (9) the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or Page 5 of 18

6 anything derived from it other than the market price. And fraudulent shall be construed accordingly; Regulation 3 and 4 of the PFUTP Regulations - 3. Prohibition of certain dealings in securities " No person shall directly or indirectly (a) (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under." 4. Prohibition of manipulative, fraudulent and unfair trade practices "(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities." SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 Code of Conduct for Stock Brokers "A. General (3) Manipulation: A stock-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to distorting market equilibrium or making personal gains. (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him." Code of Conduct for Sub-Brokers "D. Sub-Brokers vis-a vis regulatory Authorities (4) Manipulation: A sub-broker shall not indulge in manipulative, fraudulent or deceptive transactions or schemes or spread rumours with a view to disturbing market equilibrium or making personal gains. " Page 6 of 18

7 11. I shall now proceed to deal with the charges alleged against the Noticees. In the instant case, the issue for consideration is whether the Noticees collection of money through various schemes and managing the funds of investors is in violation of Section12(1) of the SEBI Act read with Regulation 3 of the PMS Regulations, Rule 8(3)(f) of the SCRR and Clauses A(1), (2) and D(4) of the Code of Conduct for Sub-brokers read with Regulation 15 of the Stock Brokers and Sub-brokers Regulations, Section 12A (a) (b) and (c) of the SEBI Act and Regulation 3 (b), (c) and (d) and Regulation 4(1) and 4(2) (k) of the PFUTP Regulations. 12. On an examination of the material available on record such as investor complaints along with the documents furnished by them, Bank statements, information downloaded from MCA21 portal, etc., the following are observed: (a) Lee Capital was incorporated on March 23, 2005 having its registered office at T C 25/2709, Kohinoor Flat, Lukes Lane, Pulimood, GPO Thiruvananthapuram, , Kerala. As per the certificate of Registration dated September 15, 2005 issued by SEBI, Lee Capital was a member of CSE. Lee Capital is also a sub broker affiliated to CSBL (details are mentioned at paragraph 1). Lee Capital has its branches in Kollam, Malappuram, Kozhikode, etc. The directors of Lee Capital are Mr. Santhosh Kumar K. L. (Managing Director) holding 80% shares of Lee Capital and Mr. Kunjiraman Pillai (father of Mr. Santhosh Kumar) holding 10% shares. The remaining 10% shares are held by 13 other persons including the employees of Lee Capital. SEBI's inquiry with Lee Capital s employees including Branch Managers, senior executives and investors have revealed the following facts: (b) Lee Capital was extensively mobilizing/soliciting deposits during the period from 2005 to 2013 from the investors using its SEBI registration as a member of CSE. These investors were not registered clients of Lee Capital for the purpose of dealing in securities and they were not allotted unique client codes as required for securities transactions. (c) Lee Capital, however, indicated fake "unique client numbers/code" in the letters issued to the investors. It also printed SEBI registration numbers on envelopes and receipts. (d) Lee Capital did not forward the details of these clients / investors to CSE of which it is a member, nor did it intimate those details to CSBL with whom it is associated as a subbroker. In most of the cases, the clients/investors did not have demat accounts. Page 7 of 18

8 (e) Lee Capital had launched/sponsored various schemes wherein it used to solicit funds from various investors by making false promises of unrealistic returns without making any genuine investments, and used to pay the profit share to the existing investors out of the funds collected from new investors. It was observed that the schemes floated by Lee Capital envisaged profit sharing ranging from 36% to 60% per annum to the investors. Some of the schemes floated by Lee Capital are as under: Table 1: Schemes floated by Lee Capital Name of Sub Schemes Minimum Profit-Share per Lock-in Floated in the Investment month on the period the year Scheme (1 unit) amount Portfolio Investment Initial Trading account (IT account) Gold Schemes Equity & Not available Not Available NA Prior to 2006 mutual fund 980 scheme `980/- `60/- 1 year lock in 4900 scheme `4900/- `300/- 1 year 2007 till date lock in scheme `10000/- Initially `490; 1 year Later reduced to lock in `450/ scheme `10000/- `1200/- per quarter 1 year 2008 quarterly payment lock in scheme `10000/- `300/- per month 1 year 2009 to 2010 lock-in `900/- per quarter 1 year till date lock-in Mega Gold `200000/- `10000/- monthly No Lock till date In Mini Gold `60000/- `3000/- monthly No Lock 2010 In Thejus Gold `60000/- in `3000/- monthly No June multiples only- can Lock-in Feb have three accounts in one go. Additional (money collected in 5 tranches) Page 8 of 18

9 Name of Sub Schemes Minimum Profit-Share per Lock-in Floated in the Investment month on the period the year Scheme (1 unit) amount accounts could be opened only after two months. Margin DP `25000/- It was started with Nil Nov-Dec 2011 Margin Gold (receipts show as gold trading) `1000/- per month per unit. Later increased to `1200/- (per `25000/-) per month `100000/- `5000/- per month No Lock in Feb 2013 Currency Currency trading `50000/- `3000/- per month NA April 2013 (f) Branch-wise collection of approximate amount in respect of various schemes floated by Lee Capital as noted during inquiry is described in the following Table: Name of the Branch No. of clients Amount collected (Rs.) Chirayinkeezhu 150 4,00,00,000 Perinthal Manna ,00,00,000 Calicut ,00,00,000 Nilamboor 250 6,00,00,000 Thiruvananthapuram (all branches together) NA 50,00,00,000 Kollam NA 20,00,00,000 Kottakkal NA 2,00,00,000 Coimbatore NA 3,00,00,000 Total 1,33,00,00,000 Page 9 of 18

10 (g) For the purpose of collection of monies from the investors and payment to them, Lee Capital had opened around 39 bank accounts. The details of these accounts are as follows: Sl Name of the No. Bank Branch Name Accountholder Account No. IFSC 1 South Indian Bank ( SIB ) Bangalore Capital Wings SIBL SIB Bangalore Equity Creations SIBL SIB Sasthamangalam LCS Equities SIBL SIB Sasthamangalam Add Soft SIBL SIB Sasthamangalam Capital Equity Service SIBL SIB Sasthamangalam Sharelinks SIBL SIB Sasthamangalam Sahre Info SIBL SIB Sasthamangalam SS Equity Service SIBL SIB Sasthamangalam Capital Share Trading Service SIBL SIB Sasthamangalam SKS Equity Service SIBL SIB Sasthamangalam Fortune Equities SIBL SIBBangalore SJ Associates SIBL SIBBangalore Share Capital Service SIBL SIBBangalore Thejus Gold SIBL SIBBangalore SS Capital Service SIBL SBT Vazhuthakkad Share Invest SBTR SBT Vazhuthakkad Equity Services SBTR SBT Vazhuthakkad LCS Commodity Pvt. Limited SBTR SBT Vazhuthakkad M M Capital SBTR SBT Venganoor M M Capital Service NA- LCS Commodity 21 SBI, Panavila Trading Pvt. Limited SBTR Axis Bank, MG Road, Bangalore United Capital Service UTIB Page 10 of 18

11 23 ICICI Bank, Trivendrum Meditrans Jobs NA 24 ICICI Bank, Trivendrum Shoppy Bazar NA Canara Bank, 25 Vazhuthakkad LCS Service CNRB Canara Bank, 26 Vazhuthakkad Creative Capital Service CNRB Indian Overseas Bank, GH Junction SS Capital IOBA Indian Overseas Bank, GH Junction Insoft Web Solutions IOBA Indian Overseas Bank, GH Junction LCS Trading Account IOBA Corporation bank, Kalyan Nagar, Bangalore SS Trading Service CBCA CORP Corporation bank, Kalyan Nagar, Bangalore Capital Trading Service CBCA CORP Corporation bank, Kalyan Nagar, Bangalore SLR Capital CORP SIB Sasthamangalam Santhosh Kumar K L SIBL SIB Sasthamangalam Santhosh Kumar K L SIBL SIB Sasthamangalam Santhosh Kumar K L SIBL SIB Sasthamangalam Santhosh Kumar K L SIBL Lee Capital Services Pvt. Ltd./ Share 37 SIB Sasthamangalam Capital SIBL Page 11 of 18

12 38 SIB Bangalore Lee Capital Pvt Limited SIBL SIB Sasthamangalam Thejus Gold SIBL (h) From the complaint filed by one of the employees of Lee Capital, it is noted that some of these bank accounts were opened using documents of various employees of Lee Capital collected from them in the guise of opening pension scheme. As per the documents obtained from the Banks, it was observed that even though the bank accounts were in different names, Mr. Santhosh Kumar, the Managing Director of Lee Capital used to sign on the cheques in different names. (i) On examination of a few bank accounts, it was revealed that deposits through cheques, mostly for amounts of `60,000/-, `1, 00,000/- and `2, 00,000/- were collected from various investors towards its schemes mentioned above. Further, payments in small amounts were made to various accounts indicating payment of profit share" to the investors. The pattern of receipts-payments-redemptions in these accounts did not indicate any kind of investment being made out of the monies so collected from the investors. (j) As per the employees of Lee Capital, the investments towards the various schemes were collected through the following modes as per the convenience of the investors: i. Cash: The employees of branches at Thiruvananthapuram and Kollam were instructed to collect the investments in cash. ii. Self Cheques: Investments were also collected through self cheques. These cheques were sent to the back office at Vazhuthakkad, Thiruvananthapuram. iii. Account payee cheques: The employees at other branches collected the investments through account payee cheques. The cheques were collected by the marketing executives and deposited in different bank accounts as per the instructions of Mr. Santhosh Kumar. Page 12 of 18

13 (k) From the receipts issued by Lee Capital to the investors (submitted by the investors) in respect of the amount collected from them, it is noted that on some of the receipts, Lee Capital mentioned SEBI registration number for stock broker of CSE and also registration numbers as a sub broker of CSBL at NSE and BSE. The receipts, however, did not bear any serial number. Lee Capital also issued receipts in the name of LCS Equities. (l) As per the schemes floated by Lee Capital, the investors were promised a profit share i.e. the profit generated out of their investments. The employees stated that they were strictly instructed not to use the word interest while paying the said profit share. These payments were made in the following modesa) Cash payments: The investors were paid in cash the agreed profit share before 10 th of every month. The investors were given the option to visit the branch office and collect the money. The executives of Lee Capital were also used to hand deliver the profit share to the investors. b) Direct deposits of the payment in the bank accounts of the investors. Lee capital had employees designated as credit executives. The role of these credit executives were to collect the cash from the branches and deposit directly in the bank accounts of investors. c) Inter-bank transfers in the bank accounts of the investors. (m) Lee Capital used to pay hefty commissions to its employees and agents. Any person including the existing investors could bring investments from new investors and become an agent. The agents were paid a commission of 10% on new investments and 9.8% on renewals. Generally, commissions were paid in cash in the month following the receipts of investments from the investors. Lee Capital also had a number of marketing executives reporting to the GM Marketing. The executives were paid a commission of 5.5% of the entire deposit/investment canvassed by them, in addition to the fixed salary. (n) As per the investor complaints, Lee Capital collected money from members of the public towards portfolio management services using its SEBI Broker/Sub-broker registrations. It is noted from the copy of a sample Application for Account, Lee Capital Page 13 of 18

14 had given the option to the investors to select the portfolio management i.e., to manage their own portfolio or to get it managed by Lee Capital. The investors were promised an assured monthly profit of Rs.3,000/- to Rs.5000/-per lakh depending on the scheme. Lee Capital had issued letters informing them of opening of their specific trading accounts (e.g. Initial Trading Account, Daily Trading Account, etc.) and allotted a number. Lee Capital issued receipts for the investments collected from the investors. In the light of the facts mentioned above and also from the complaints received from the clients/investors of Lee Capital, it is clearly established that Lee Capital was collecting money from members of public by misusing the registration granted as stock broker and sub-broker. 13. Lee Capital s fund mobilization gives rise to pecuniary liability to those from whom the money has been collected, which it cannot undertake, being a member of a recognized stock exchange and SEBI registered stock broker, in view of the prohibitions contained in rule 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957 ("SCRR"). As per Rule 8 (3) (f) of SCRR, a member of the Stock Exchange is prohibited from engaging in any business other than that of securities or commodity derivatives except as a broker or agent not involving any personal financial liability. In view of the same, I find that Lee Capital by undertaking the above activities violated the rule 8(3)(f) of SCRR. 14. It is noted that Lee Capital entered into agreements (as options in application forms) with the investors as a portfolio manager without having any valid certificate of registration issued by SEBI. Lee Capital misused its status as SEBI registered intermediary and collected money through misrepresentation and allurement of high returns in the nature of profit share for their investments. In fact, the money collected from new investors were being distributed to the existing investors as profit share. In view of the aforesaid, I note that Lee Capital misled the investors to believe that it was authorized to do the activities as described above as a portfolio manager by misusing the SEBI registration, which it had obtained to act as a stock broker and sub broker. Hence, I find that the charges against Lee Capital that it acted as unregistered portfolio manager in violation of Section 12(1) of SEBI Act read with Regulations 3 of the PMS Regulations, 1993 stands established. Page 14 of 18

15 15. It is noted from the investor complaints and the schemes that Lee Capital had misused its status as a broker/sub broker and collected funds and deposits from them through misrepresentation as a portfolio manager and allurement of high returns. In view of the same, I find that Lee Capital has clearly devised a scheme which is 'fraudulent' as defined in regulation 2(1) (c) of the PFUTP Regulations. It is clear that Lee Capital made misrepresentations by making fraudulent and deceitful claims. In the light of the same I find that Lee Capital has acted in fraudulent and deceitful manner in violation of Section 12A (a) (b) and (c) of the SEBI Act and Regulation 3 (b), (c) and (d) and Regulation 4(1) and 4(2) (k) of the PFUTP Regulations. 16. Lee Capital as a SEBI registered Broker/Sub-broker at the relevant time was duty bound to follow the conditions of granting of certificate of registration and also to abide by the code of conduct prescribed under the Brokers Regulations. Lee Capital by misusing the status as Broker/Sub-broker solicited and collected money from the members of public through various fraudulent schemes as detailed at paragraph 12(e) promising them high returns. Hence, I find that Lee Capital failed to maintain high standards of integrity, promptitude and fairness prescribed for an intermediary, therefore violated Section 12(1) of the SEBI Act read with clauses A(3) and A(5) of the Code of Conduct specified for Stock Brokers in Schedule II read with regulation 7 and Clause D(4) of the Code of Conduct specified for Sub-brokers in Schedule II read with regulation 15 of the SEBI (Stock Brokers and Sub- Brokers) Regulations, 1992 ("Stock Brokers Regulations") 17. It is pertinent to mention that the money was collected by Lee Capital from clients/ investors through various accounts controlled by Mr. Santhosh Kumar K.L., the Managing Director of Lee Capital. It is also noted that Mr. Santhosh Kumar K.L. and Mr. Kunjiraman Pillai are holding 90% of the shares in Lee Capital and hence they are the controlling shareholders of Lee Capital. By virtue of their directorship in the company and the fact that they are controlling the affairs of Lee Capital, the liability to refund the money collected from their clients and other investors squarely falls on Mr. Santhosh Kumar K.L. and Mr. Kunjiraman Pillai and they are jointly and severally liable to refund the amounts so collected from the investors. Page 15 of 18

16 18. It is also noted that the Lee Capital failed to comply with the directions issued by SEBI in the ex-parte order dated December 19, Lee Capital has not submitted the report as directed in the ex-parte order indicating refund of monies collected from his clients and other investors under various schemes. However, considering the fact that one of the Directors is in judicial custody and another is absconding, I am of the view that a fresh period of sixty (60) days for repayment of monies collected from the clients from the date of this order be granted to Lee Capital and its Directors. 19. SEBI has been entrusted with the important mandate of protecting the investors and safeguarding the integrity of the securities market. In this regard, necessary powers have been conferred upon it under the securities laws. It is, therefore, necessary that SEBI exercises these powers firmly and effectively to insulate the market and its investors from the fraudulent actions of any of the participants in the securities markets. A basic premise that underlines the integrity of securities market is that persons connected with securities market conform to standards of transparency, good governance and ethical behaviour prescribed in securities laws and do not resort to fraudulent activities. In view of the gravity of the violations perpetrated by Lee Capital as brought out in the foregoing paragraphs, I am of the opinion that entities such as Lee Capital and its Directors should not be allowed to have access to the securities market in view of the possible danger to the investors at large. 20. In view of the foregoing, I, therefore, in exercise of the powers conferred upon me by virtue of section 19 read with section 11(1), 11(4), 11B and 11D of the SEBI Act do hereby pass the following directions : i. (a) Lee Capital Services Private Limited (PAN: AABCL1849A) shall refund the monies so collected from its clients and other investors through various schemes along with income, profits or returns promised to them under such schemes or interest at the rate of 10% per annum, whichever is higher, from the date of investment till the date of refund within a period of sixty (60) days; (b) The Directors of Lee Capital viz., Mr. Santhosh Kumar K.L. (PAN: AMOPK1159Q) and Mr. Kunjiraman Pillai (PAN: ANCPP3867H) shall jointly and severally refund the monies to the investors along with income, profits or returns promised to them under various schemes of Lee Capital or interest at the rate of 10% per annum, whichever is higher, from the date of investment till the date of refund within a period of sixty (60) days; Page 16 of 18

17 (c) Lee Capital and its abovementioned Directors shall submit a repayment report to SEBI in the following format as certified by two independent Chartered Accountants who are in the panel of any public authority or public institution:. S. Name of PAN of Address of Refund Details No. Client / Client / Client/ From To Amount Investor Investor Investor Cheque No./ Name of the Cheque No./ Demand Draft/ Bank Demand Draft/ NEFT details NEFT details ii. (a) Lee Capital Services Private Limited (PAN: AABCL1849A) shall not sell the assets except on a specific request made in writing to SEBI in that regard; (b) The Directors of Lee Capital viz., Mr. Santhosh Kumar K.L. (PAN: AMOPK1159Q) and Mr. Kunjiraman Pillai (PAN : ANCPP3867H) shall not sell their assets except on a specific request made in writing to SEBI in that regard; iii. Lee Capital Services Private Limited (PAN: AABCL1849A) its directors viz., Mr. Santhosh Kumar K.L. (PAN: AMOPK1159Q) and Mr. Kunjiraman Pillai (PAN : ANCPP3867H) shall provide a full inventory of all assets and properties and details of all its bank accounts, demat accounts and holdings of shares/securities, if additionally held in physical form. iv. The Directors of Lee Capital viz., Mr. Santhosh Kumar K.L. (PAN: AMOPK1159Q) and Mr. Kunjiraman Pillai (PAN: ANCPP3867H) may file objections/submissions to SEBI within 30 days from the date of receipt of this order with respect to the directions mentioned at i (b) and ii (b) above; failing which the directions shall become absolute. v. The direction at sl.no. i(a) above shall take effect immediately on the date of this order. vi. Lee Capital Services Private Limited (PAN: AABCL1849A) and its Directors viz., Mr. Santhosh Kumar K.L. (PAN: AMOPK1159Q) and Mr. Kunjiraman Pillai (PAN : ANCPP3867H) are directed not to, directly or indirectly, access the securities market, and are further restrained and prohibited from buying, selling or otherwise dealing in the securities market, Page 17 of 18

18 directly or indirectly in whatsoever manner, from the date of this Order, till the expiry of ten (10) years from the date of completion of refunds to investors as directed above. 21. This order shall come into force with immediate effect. The stock exchanges and the depositories are directed to ensure that the above directions are strictly enforced. 22. A copy of this order be sent to Economic Offences Wing, Government of Kerala, Ministry of Corporate Affairs, Government of India, New Delhi and Reserve Bank of India for information and necessary action, if any. Place: Mumbai Date: March 31, 2016 S. RAMAN WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Page 18 of 18