The Securities and Exchange Board of India (Sebi) has fined HSBC Asset Management (India) Private Limited ₹5 lakh after discovering that an order from 2023, which cleared the asset management company (AMC) of wrongdoing, was mistaken and not in the best interest of the securities market.
Review of Investment Decisions
Sebi reviewed whether HSBC AMC properly documented its investment decisions. The review also focused on the sale of three stocks—Hindustan Zinc, Sadbhav Engineering, and Vodafone Idea—that led to losses of ₹1.61 crore, ₹14.97 crore, and ₹25.43 crore, respectively. The total loss from these sales was ₹42 crore.
Case History and Acquisition
The case involves L&T Investment Management (L&T AMC), which was part of L&T Mutual Fund before being acquired and merged into HSBC Asset Management in May 2023.
Guidelines and Adjudicating Officer’s Order
According to Sebi’s guidelines from July 2000, HSBC AMC was supposed to record the reasons for its investment decisions. However, an adjudicating officer’s order from August 23, 2023, said that the 2000 circular was unclear about what details the AMC needed to consider. The order also stated that there were no set timelines for updating research reports, which made it unjust to hold HSBC AMC accountable for not updating them.
Sebi’s Show-Cause Notice
On November 6, 2023, Sebi issued a show-cause notice to HSBC AMC to explain why the previous order should be reviewed and why a fine should not be imposed. HSBC AMC argued that the notice was legally flawed and based on incorrect facts. They also mentioned that during the inspection, the auditor had reviewed the records and found evidence supporting the company’s investment decisions.
Audit Findings and Legal Proceedings
Earlier, Sebi had hired an independent auditor to inspect L&T Mutual Fund’s records from April 1, 2019, to March 31, 2021. The audit, completed in July 2022, found issues with how records and rationales for investment decisions were kept. Following this, Sebi initiated legal proceedings and issued a show-cause notice in March 2023, followed by a supplementary notice in June 2023.
Final Order and Penalty
The new Sebi order, issued today, stated that the previous adjudication order was incorrect and not in the market’s best interest. Therefore, a fine of ₹5 lakh was imposed on HSBC AMC.
Disclaimer: The views and investment tips expressed by investment experts on Sharepriceindia.com are their own and not those of the website or its management. Sharepriceindia.com advises users to check with certified experts before taking any investment decisions.
