Sebi has its hands full, as BMA Wealth investors demand Karvy-like refund action

BMA’s clients allege that depository firm CDSL and stock exchanges did not act on their complaints, prompting them to protest before Sebi.

They say their shares have been transferred to a pool account without their knowledge and have been used to avail loans.

Illustration: Uttam Ghosh/Rediff.com

With market regulator Securities and Exchange Board of India (Sebi) trying hard to resolve the Karvy fiasco, yet another hot potato has landed squarely in its lap.

Clients of BMA Wealth on Monday staged protest outside Sebi headquarters at Bandra Kurla Complex (BKC) in Mumbai, demanding their securities and funds be restored.

Interestingly, Sebi had issued an order against BMA Wealth in October, a month before Karvy in a similar case of fraudulently transferring and pledging of client securities.

BMA’s clients allege that depository firm CDSL and stock exchanges did not act on their complaints, prompting them to protest before Sebi.

They say their shares have been transferred to a pool account without their knowledge and have been used to avail loans.

Clients, former employees, and former franchisees of the brokerage from various parts of Mumbai and other cities had come to protest.

They blocked the second gate to Sebi’s BKC office till they were granted an audience with Sebi whole-time member Anant Barua, who had issued orders against BMA and Karvy.

According to sources, Sebi officials told investors that the regulator has summoned BMA’s management on Wednesday.

An earlier meeting was scheduled on November 11, where the management of BMA did not turn up.

Clients alleged that BMA has pledged their securities with a leading private bank, who could have sold their holdings.

Further, clients said BMA is coercing them into signing a document stating that the brokerage had their consent to pledge their shares.

They also said they didn’t receive any alert from the depository or the exchange when their securities got transferred.

Investors said while Sebi acted swiftly in the case of Karvy, it has done nothing to address their problem.

“My shares worth Rs 7 lakh and funds of around Rs 77,000 are stuck with BMA.

"I recently sold 50 shares of Colgate and haven’t received the payout,” said 65-year-old Gajanand Keshav Kale, protesting outside Sebi.

Sources say close to Rs 100 crore worth of securities belonging to its clients were transferred and pledged by BMA Wealth.

However, in this case, Sebi may not be able to restore securities as lenders might have sold them, said a person privy to the development.

“Investors in Karvy got immediate relief because of big financial institutions and mutual funds were affected.

"Here ordinary investors have been left in the lurch.

"The modus operandi in both cases is the same,” said Sarat Murarka, former national head broking and wealth, BMA Wealth, who joined the protesters.

“I was on holiday when this fiasco unfolded. We were caught off guard.

"All this was happening out of the head office in Kolkata.

"At least we got an audience today (December 9). We had come 10 days back and left after waiting the whole day,” added Murarka.

Sources say Sebi may have to dig into the investor protection fund to compensate the clients of BMA Wealth.

However, the maximum compensation in this case is only Rs 25 lakh.

The regulator might also consider auctioning the assets belonging to BMA to pay back investors, added the source.

Barua reportedly told clients that Sebi would take the best possible decision in the interest of clients.