Interim order in the matter of Capquest Research Private Limited

WTM/GM/IMD/29/JULY/2017 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under Sections 11(1), 11 (4), 11B and 11D of the Securities and Exchange Board of India Act, 1992 read with Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 in respect of :- Sr. Company DIN/CIN PAN No. 1. Capquest Research Pvt. U74140DL2015PTC279589 NA Limited Promoters & Directors 2. Gitesh Malik 07159286 BJVPM8516J 3. Shanshanka Sharma 07159273 EFHPS5052E 4. Prashant Kumar 07159278 BTDPK3372G

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") received complaints wherein it was alleged that Capquest Research Private Limited and its promoters / directors namely Gitesh Malik, Shashanka Sharma and Prashant Kumar (hereinafter collectively referred to as "CRPL") were offering trading tips / investment advice and were soliciting clients through their website (www.capquestresearch.com) under various plans.

2. On a preliminary examination, it was observed that CRPL was offering stock, index and derivative tips through various plans and was soliciting clients under various schemes.

CRPL was seen assuring guaranteed return on execution of its stock tips and is providing assurance of 90% accuracy of its tips on its website.

3. As all the aforesaid information received from the complainants and the website of CRPL prima facie indicated that the activities of CRPL are in the nature of offering financial advisory services to the clients, SEBI vide letters dated August 13, 2015, September 14, 2015 and January 18, 2016 advised CRPL to submit details in respect of its business, promoters and directors etc. In response, CRPL vide letters dated August 21, 2015, September 21, 2015 and January 21, 2016 submitted the following information:

I. Names of directors, along with their mobile numbers; PAN numbers, email id along with self-attested copies of their identity and address proofs. II. List of clients along with amount of fees collected. III. List of trading services provided by C·RPL IV. Copies of disclaimer, terms & conditions, cancellation and refund policy and privacy policy V. Copies of its Memorandum of Association (MoA) & Articles of Association (AoA). VI. Bank account statements of CRPL 4. With regard to its financial advisory activities, CRPL submitted that :- I. It is operating in the stock market and providing stock market recommendations / stock tips to its clients; II. It has started its operation on May 11, 2015; III. It only provides trading tips in equity and equity derivatives. It also provides market outlook and the market related information useful for the clients; IV. In its letter dated August 21, 2015, CRPL submitted that it has 237 clients out of which 117 clients are still active and working with the company and taking services while the services of 120 clients expired on August 21, 2015; V. Further, CRPL vide letter dated January 21, 2016, has submitted that it has more than 250 clients;

VI. CRPL has not provided any kind of portfolio management services; VII. CRPL has not provided any kind of investment advisory services., VIII. It is not involved in trading on behalf of the customers; IX. It is not registered with SEBI but is under process to meet the eligibility criteria as per SEBI (Investment Advisors) Regulations, 2013; X. It is unable to provide the audited financial accounts for last three years as the company started operations only three months back. 5. On an examination of the information available on the website of CRPL, reply received from CRPL, information/documents obtained from the MCA website, RoC portal, it is observed that- (i) Capquest Research Private Ltd. (CIN:U74140DL2015PTC279589) was incorporated on April 28, 2015. Its registered address is A-30, FIFE Complex, Okhla Industrial Area, Phase -11, New Delhi -20. Gitesh Malik, Shashanka Sharma and Prashant Kumar are the directors/ promoters of CRPL.

(ii) The main object of CRPL as per its MoA is 'To carry on the work of research activities in the area of equity, investment, stock, securities and real estate and to act as portfolio managers, fund managers, investment consultant & advisors to corporate bodies, individuals and others, to give advice and suggest ways to maximize their capital, to support the clients for timely and well informed investment decisions, to provide both fundamental and technical analysis, to provide a cost effective way of doing research and analysis, to help investors in investment decisions, to make them understand whether to enter or exit a market position. "

(iii) From the website of CRPL and from submissions of CRPL vide letter dated September 21, 2015, it is observed that CRPL offered the following types of services at the indicated prices:

Sr. Type of Service & related Nature Pricing no details 1 Cash Intraday On daily Plan Basic Standard Premium (Day trading, taking basis one Duration INR INR INR advantage of rising and call 1 month 9,000 12,000 15,000 falling market, short selling 3 month 20,000 25,000 30,000 taking advantage of falling 6 month 30,000 40,000 50,000 stock prices.) 12 month 45,000 55,000 65,000 2 Cash Positional 7-8 calls Plan Basic Standard Premium (Maximum holding period in a Duration INR INR INR will be 2-3 days, designed for month 1 month 15,000 20,000 25,000 traders who avoid taking risk 3 month 30,000 35,000 40,000 in futures, trade in stocks 6 month 45,000 50,000 60,000 which are technically strong) 12 month 60,000 75,000 90,000 3 Intraday Futures On daily Plan Basic Standard Premium (For traders taking basis one Duration INR INR INR advantage of intraday trading cell 1 month 9,000 15,000 20,000 in huge volume and market 3 month 20,000 30,000 45,000 conditions, approx. 5-7% 6 month 30,000 45,000 60,000 profit per lot, all open 12 month 45,000 60,000 80,000 position squared off automatically ) 4 BTST/STBT PRO 10-15 Plan Basic Standard Premium (For traders who don’t have calls in Duration INR INR INR time to track the stocks in month 1 month 15,000 20,000 25,000 the live market, approx.

8-10 3 month 30,000 45,000 60,000 % profit per lot) 6 month 45,000 60,000 80,000 12 month 60,000 85,000 1,00,000 5 Futures jackpot 7-8 calls Plan Basic Standard Premium (Entry and exit on right time in a Duration INR INR INR and with daily market month 1 month 20,000 25,000 30,000 outlook update, approx. 6- 3 month 30,000 45,000 60,000 8% profit per lot, Monthly 1 6 month 40,000 60,000 90,000 Jackpot call) 12 month 50,000 85,000 1,20,000 6 Intraday options On daily Plan Basic Standard Premium (Earning on daily basis, basis one Duration INR INR INR guidance and better call 1 month 7,000 10,000 15,000 opportunities to make 3 month 15,000 20,000 25,000 money on daily basis with 6 month 20,000 25,000 30,000 trading discipline.) 12 month 25,000 30,000 40,000 7 Option BTST 10-15 Plan Basic Standard Premium (For making huge amount of calls in Duration INR INR INR money overnight with month 1 month 10,000 15,000 20,000 minimum risk, approx. 150- 3 month 20,000 25,000 30,000 200% profit per lot, entry in 6 month 30,000 40,000 50,000 the last hour and exit in the 12 month 40,000 50,000 60,000 first hour) 8 Option Payoff 7-8 calls Plan Basic Standard Premium (For traders with less capital in Duration INR INR INR and risk avoiders, buy month 1 month 15,000 20,000 25,000 option, limited risk and 3 month 30,000 45,000 60,000 unlimited profit, safe 6 month 45,000 60,000 80,000 strategy with required 12 month 60,000 85,000 1,00,000 knowledge) 9 Index Intraday On daily Plan Basic Standard Premium (Help overcome fluctuations basis one Duration INR INR INR in NIFTY because of the call 1 month 9,000 12,000 15,000 news that come at night.

3 month 20,000 25,000 30,000 Efficient profit 6 month 30,000 40,000 50,000 management) 12 month 45,000 55,000 65,000 10 Index Champion 7-8 calls Plan Basic Standard Premium (Index trading based on in Duration INR INR INR technical analysis tools, for month 1 month 15,000 20,000 25,000 traders looking for low risk 3 month 30,000 45,000 60,000 and high returns in a very 6 month 45,000 60,000 80,000 short period, holding period 12 month 60,000 85,000 1,00,000 1-2 days, 1 contract active at one time.)

(iv) Under these plans of service, CRPL is offering stock tips in both segments i.e. cash and derivatives. Further, the frequency of calls/recommendation vary from segment to segment. For instance, an investor opting for intraday cash, the recommendation frequency is 1 call per day. Similarly, an investor opting for "Cash Positional", the recommendation frequency is 7 to 8 calls per month (v) From the aforesaid details displayed in their website, it is observed that the users/investors are advised by CRPL to undertake the transactions based on the updates/stock tips provided through Mail, SMS, web-login etc. It is also observed that depending on the plan opted for by the investors, recommendation calls are made by CRPL for giving tips to them. Similarly on an analysis of information on the website www.capquest research .com, it is observed that the company is also assuring guaranteed return on execution of its stock tips and is providing assurance of 90% accuracy of its tips. (vi) CRPL has stated that there is no executed copy of agreement with the client, but CRPL does send invoice to the customer along with copies of disclaimer, terms and conditions, cancellation and refund policy and privacy policy as per information provided to SEBI.

It is also observed that the same are also appearing on its website. This indicates that CRPL is having a contractual arrangement with its clients with respect to the plans subscribed and services provided. (vii) Analysis of bank account statements of CRPL indicate that there are regular flow of funds in the bank accounts through cash or online transfers. Further, such cash deposits have been made from various locations like Aurangabad, Nasik, Delhi, Solapur, Tiruvottiyur, Mumbai, Kashipur etc. indicating that CRPL has clients all across India. (viii) As per letter dated 21/09/2015 submitted by CRPL to SEBI, it has received Rs.24,19,716 from 233 investors. Further, as per letter dated 21/01/2016, CRPL has received Rs. 24,82,239 from 228 investors. . (ix) It is also relevant to note that CRPL in all its letters to SEBI admitted that they are engaged in the business of providing stock tips to its clients and is in the process of applying to SEBI for seeking registration as an investment adviser. In its letter dated January 21, 2016 it stated that “ The company is not at all involved in the trading on behalf of the customer or any other medium, the company is only involved in advising the clients to BUY/SELL the stocks based on the research and analysis.”

6. From the analysis of the available information, it is prima facie observed that CRPL and its Promoters / Directors are engaged in providing investment advisory services to investors on payment of fees as discussed in the preceding paragraphs, which fall under the definition of “investment adviser” as defined by Regulation 2(m) of the SEBI (Investment Advisers) Regulations, 2013 (the “SEBI IA Regulations” in short) which reads as under: “investment adviser” means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called;.

7. It is imperative that any person carrying out investment advisory activities has to obtain registration from SEBI and conduct its activities in accordance with the provisions of the SEBI IA Regulations. Section 12(1) of the SEBI Act, 1992 reads as below:- “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:” Further, Regulation 3(1) of the SEBI IA Regulations provides that “On and from the commencement of these regulations, no person shall act as an investment adviser or hold itself out as an investment adviser unless he has obtained a certificate of registration from the Board under these regulations”.

8. SEBI has a statutory duty to protect the interests of investors in securities and promote the development of, and to regulate the securities market. Section 11 of the SEBI Act has empowered it to take such measures as it thinks fit for fulfilling its legislative mandate. The Investment Advisers Regulations have been formulated with the main objective of regulating such advisory activities to safeguard the interests of investors through registration. Registration of investment advisers under the IA Regulations has been mandated so as to provide protection to investors trading in the securities market relying on the investment advices rendered by such entities. Registration ensures that a registered Investment Advisor will carry out its activities in compliance with the terms and conditions of the certificate of registration and by fulfilling the prudential / risk profiling/ suitability/ disclosure and other requirements mandated under the Regulations. Registration enables SEBI to extend its regulatory powers over the entity and initiate suitable action as provided under the IA Regulations in case of any breach by such entities.

9. In view of the facts stated in the foregoing paragraphs and in light of the prima facie finding against CRPL, it is felt inevitable that as an urgent preventive measure to protect the interest of investors, an ex-parte ad-interim order is passed against CRPL with immediate effect, to ensure that it does not continue any further with its investment advisory business.

10. In view of the foregoing, I, in exercise of the powers conferred upon me under Sections 11(1), 11(4)(b), 11B and 11D read with Section 19 of the SEBI Act, 1992, the following directions – (i) Capquest Research Private Limited and its promoters / directors namely Gitesh Malik PAN (BJVPM8516J), Shashanka Sharma PAN (EFHPS5052E) and Prashant Kumar PAN (BTDPK3372G) are directed to:- a. cease and desist from acting as an investment advisor and cease to solicit or undertake such activity or any other activities in the securities market, including buy, sell or otherwise deal in securities market, either directly or indirectly with immediate effect; b. not to divert any funds raised from investors, kept in bank account(s) and/or in their custody until further orders, except for the purpose of refunds to the clients; and c. withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to their investment advisory activity or any other unregistered activity in the securities market with immediate effect.

11. This order is without prejudice to the right of SEBI to take any other action that may be initiated against Capquest Research Private Limited and its promoters / directors Gitesh Malik, Shashanka Sharma and Prashant Kumar in accordance with law.

12. Capquest Research Private Limited and its promoters / directors Gitesh Malik, Shashanka Sharma and Prashant Kumar may file objections, if any, within twenty one (21) days from the date of this Order and, if so desired, avail of an opportunity of personal hearing before the Securities and Exchange Board of India, on a date and time to be fixed on a specific request, received from him.

13. This Order shall come into force with immediate effect and shall be in force until further orders.

Date: July 4, 2017 G MAHALINGAM Place: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA