SEBI bans Modex International, directors for misusing clients' funds

Regulator Sebi has barred Modex International Securities Ltd and its nine directors from the capital markets "till further orders" for misusing clients' funds and securities.

The directors restrained by the regulator are — Dharmendra Kumar Arora, Pavan Kumar Sachdeva, Ajay Jain, Parminder Singh Kindra, Sanjay Mohan Uniyal, Sarika Chawla, Sharda Gupta, Vikram Duggal and Suresh Agarwal.

They were the directors of Modex International Securities Ltd (MISL) during the period when the prima facie violations were committed by the broking house, Sebi said in an interim order on Thursday.

MISL is a trading member with the National Stock Exchange (NSE) and BSE and is also a depository participant of Central Depository Services Limited (CDSL).

As a part of offsite supervision, NSE observed mismatches and inconsistencies between the security balances reported by MISL in its monthly and weekly client securities balances submission in November, 2019 with the depository participant records and clearing members' submissions with clearing corporation.

Accordingly, an inspection was conducted by NSE for the period from March to December, 2019 and, it was observed that MISL posted manual adjustment entries in Register of Securities of clients, respectively.

Therefore, to determine the assets and liabilities of MISL along with the value of securities or funds potentially misappropriated by it, forensic audit of the broking house was also conducted for the period April, 2017 to January, 2020.

During the course of the forensic audit, it was observed that MISL had recorded incorrect entries in the back office register of securities which resulted misrepresentation of the security balances. Also, it was noted that the broking firm had misused clients' fund.

On the basis of forensic report, NSE submitted its report to the Securities and Exchange Board of India (Sebi).

“The findings of the NSE Report, indicate that there has been misuse of clients' funds and securities by the MISL and therefore... MSIL has been found to be in prima facie violation of... provision of law,” Sebi said.

This included violation of stock brokers norm and portfolio managers rules among others.

It, further, noted that these directors are also liable for the prima facie violations found to have been committed by MISL.

Accordingly, the regulator has barred these entities from accessing the securities market till further directions.

Further, the regulator has imposed several restrictions on them including ban from disposing of or alienating any assets, whether movable or immovable. PTI SP DRR DRR