Sebi was examining if the fund house had adequately recorded reasons for its investment decisions, among other things. Also, the market regulator looked into the reasons for the sale of three stocks viz. Hindustan Zinc, Sadbhav Engineering and Vodafone Idea, which resulted in losses worth Rs 1.61 crore, Rs 14.97 crore and Rs 25.43 crore, respectively. The total loss was recorded at Rs 42 crore.
The case pertains to L&T Investment Management (L&T AMC) which was earlier a part of the L&T Mutual Fund and was acquired by HSBC Group in May 2023. It was subsequently merged into HSBC Asset Management.
HSBC AMC was required to record the reasons for its investment decisions according to the terms prescribed in a Sebi circular of July 2000.
However, the adjudicating officer in his August 23, 2023 order said that the July 2000 circular “lacked clarity with regard to the details that had to be considered by the AMC while making subsequent investment decisions and further the noting was proposing for issuance of a clarification, hence, the violation is not established”.The AO also held that there were no timelines given in the MF Regulations or July 2000 circular prescribing timelines for updating Research Report. “In the absence of a time line, it may not be right to hold the Noticee (HSBC AMC) liable for not updating,” the order said.On November 6, 2023, Sebi issued a show cause notice (SCN) to HSBC AMC to explain why the order of AO should not be examined and revised and penalty not be imposed on it.In its defense, HSBC AMC argued that the SCN was without jurisdiction and not sustainable in law. It was also said that the SCN contained factually incorrect and misconceived narration.
The company also pointed out that during inspection, the auditor had perused the records and that the supplementary show cause notice of June 16, 2023 had recorded the documentary evidence and records of the analyst’s research reports in each of the 3 scrips mentioned.
Earlier, Sebi had appointed an independent auditor to conduct an inspection of L&T Mutual Fund for the period between April 1, 2019 and March 31, 2021 with respect to L&T Investment Management. An inspection report was submitted to Sebi in July 2022 which found anomalies in creating, maintaining record and rationale for the investment decision by the companies.
Subsequently, an adjudication proceeding was initiated against HSBC AMC and a show cause notice was issued on March 20, 2023 and a supplementary show cause notice on June 16, 2023.
The 37-page Sebi order that was issued today said, “I hold that the AO Order is erroneous and prejudicial to the interest of the securities market. Further, in exercise of the powers conferred upon me under sub-section (3) of section 15-I of the SEBI Act, 1992, I find that it would be sufficient to meet the end of justice in case the Noticee is visited with imposition of a monetary penalty of INR 5,00,000/- (Rupees Five Lakh Only) upon the Noticee under section 15HB of the SEBI Act, 1992”.
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