Order in the matter of MMF Solutions (alias MMF & Solutions)

WTM/MPB/EFD-1-DRA-IV/ 58 /2019 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: MADHABI PURI BUCH, WHOLE TIME MEMBER ORDER On representation dated December 27, 2018, in the matter of MMF Solutions (alias MMF & Solutions) with respect to the Order dated February 15, 2018

In respect of:

Sl. No. Name of the Entity PAN Shri Priyansh Patodi, Proprietor, MMF Solutions BBDPP5436J (alias MMF & Solutions)

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) passed an order dated February 15, 2018, (hereinafter referred to as ‘SEBI Order’) in respect of MMF Solutions alias MMF & Solutions and its Proprietor, Shri Priyansh Patodi wherein it was held that MMF Solutions and its Proprietor, Shri Priyansh Patodi (hereinafter referred to as “Priyansh Patodi”) had engaged in collecting funds from investors by providing ‘Investment Advisory Services’, Research Analyst Services’ and Portfolio Management Services’ in violation of provisions of section 12(1) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) read with Regulation 3 of the SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”), Regulation 3(1) of the SEBI (Research Analysts) Regulations, 2014 (“Research Analysts Regulations”) and Regulation 3 of the SEBI (Portfolio Managers) Regulations, 1993 (“Portfolio Managers Regulations”).

2. The said Order, inter alia, rendered the following findings qua the Noticee: Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions

 “…the activities of MMF Solutions and its Proprietor, Shri Priyansh Patodi, of giving trading tips, stock specific recommendations, etc. to investors, on payment of fees as per the Pricing Plans, are in the nature of providing ‘Investment Advisory Services’, which falls under the definition of Investment Adviser as defined by Regulation 2(m) of the Investment Advisers Regulations.  Similarly, the activities of MMF Solutions and its Proprietor, Shri Priyansh Patodi, of broadcasting daily SMS containing equity tips and market updates, issuance of weekly reports to the investors, etc. are in the nature of providing ‘Research Analyst Services’, which falls under the definition of Research Analyst as defined by Regulation 2 (1) (u) of the Research Analysts Regulations.  Further, the activities of MMF Solutions and its Proprietor, Shri Priyansh Patodi, of offering ‘Portfolio Management Services’ falls under the definition of Portfolio Manager as defined by Regulation 2(cb) of the Portfolio Managers Regulations...  MMF Solutions admittedly do not have the registration as an Investment Adviser and vide its letter dated January 1, 2015 submitted that they are in the process of completing the application for Grant of Certificate of Registration as Investment Adviser with SEBI and soon they will be submitting the Application Form with all the required documents with SEBI.

I find that there is no merit in the submission of the noticees that it was in the process of registration as per the relevant legal provisions, as they had clearly violated the law by acting as investment advisory services without mandatory certificate of registration which is not mitigated by any intention of getting registered as claimed by the noticees. Further as per the material available on record, in the instant case, MMF Solutions and its Proprietor, Shri Priyansh Patodi, have also acted as Research Analyst and Portfolio Manager without obtaining registration from SEBI. It is pertinent to note that MMF Solutions and its Proprietor, Shri Priyansh Patodi, have not submitted any reply or appeared for personal hearing to give explanation to SEBI regarding information pertaining to its aforesaid activities or controverting the findings of the interim order despite sufficient opportunities being provided to them. Several complaints have also been received against MMF Solutions and its Proprietor, Shri Priyansh Patodi, alleging that Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions the noticees failed to provide the promised services and returns on investment and failed to refund the investment made by their investors/clients.  Since the Noticees have received Rs. 64,26,952/- in their Axis Bank account as consideration for its ‘Investment Advisory Services’, ‘Research Analyst Services’, etc as reflected in their bank account for the period from October 01, 2013 to January 21, 2016, it would be reasonable that such funds collected in any name are liable to be returned to the clients…”

3. In the light of the above, vide the Order dated February 15, 2018 the following directions were issued against MMF Solutions and its Proprietor, Shri Priyansh Patodi: a) MMF Solutions and its Proprietor, Shri Priyansh Patodi shall forthwith refund Rs. 64,26,952/-and any other amount received from the clients in respect of the unregistered Investment Advisory Services, unregistered Research Analyst Services and unregistered Portfolio Manager Services and submit a certificate from a peer reviewed Chartered Accountant who is in the panel of any public authority or public institution, within a period of 3 months. For the purpose of this Order, a peer reviewed Chartered Accountant shall mean a Chartered Accountant, who has been categorized so by the Institute of Chartered Accountants of India ("ICAI") holding such certificate. b) The repayments to the clients shall be effected only through Bank Demand Draft or Pay Order both of which should be crossed as “Non-Transferable” or through any other appropriate banking channels with clearly identified beneficiaries. c) MMF Solutions and its Proprietor, Shri Priyansh Patodi are directed not to divert any funds raised from investors, kept in bank account(s) and/or in their custody, except for the purpose of refunds to the clients. d) MMF Solutions and its Proprietor, Shri Priyansh Patodi are prevented from selling their assets, properties and holding of mutual funds/shares/securities held by them in demat and physical form except for the sole purpose of making the refunds as directed above and deposit the proceeds in an Escrow Account opened with a nationalized Bank. Such

Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions proceeds shall be utilized for the sole purpose of making refund/repayment to the investors till the full refund/repayment as directed above is made. e) MMF Solutions and its Proprietor, Shri Priyansh Patodi are directed not to, directly or indirectly, access the securities market, and are prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in whatsoever manner, till the expiry of 4 years from the date of refund of the money as directed in paragraph 42(a) above. f) MMF Solutions and its Proprietor, Shri Priyansh Patodi, shall not undertake, either directly or indirectly, unregistered Investment Advisory activities, unregistered Research Analyst Services and unregistered Portfolio Manager Services or any activity in the securities market without obtaining a certificate of registration from SEBI as required under the securities laws after the expiry of period of debarment as mentioned in paragraph 42(e). g) In case of failure of MMF Solutions and its Proprietor, Shri Priyansh Patodi to comply with the aforesaid directions, SEBI, on expiry of three months period from the date of this Order may recoversuch amounts for which direction in paragraph 42 (a) of this Order, in accordance with section 28A of the SEBI Act, including such other provisions contained in securities laws. h) The above directions shall come into force with immediate effect.”

4. The aforesaid SEBI Order was challenged by Priyansh Patodi vide Appeal No 97 of 2018, before the Hon’ble Securities Appellate Tribunal (“SAT”). The Hon’ble SAT vide order dated April 24, 2018 (“SAT Order”), disposed of the appeal with the following directions;

3. “Since the appellant is willing to comply with the order impugned in the appeal, we permit the appellant to make a representation to SEBI within a period of three weeks from today setting out in detail the amounts already paid to the clients and the mode and manner in which the appellant would refund the balance amount to the clients.

Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions

4. If representation is made to SEBI within three weeks from today, then SEBI shall consider the same and pass appropriate order regarding the quantum amount refundable to the clients as expeditiously as possible. If representation is not made within three weeks from today, then SEBI is at liberty to implement the impugned order.”

5. However no representation as directed by Hon’ble SAT was received by SEBI. Instead, Priyansh Patodi, vide letter dated May 10, 2018 sought an opportunity of personal meeting for making his representation. In response to the said letter, SEBI vide letter dated May 29, 2018, informed Priyansh Patodi that no representation as mandated by Hon’ble SAT has been received by SEBI.

6. In response, Priyansh Patodi, vide letter dated June 04, 2018 claimed that he made a representation vide letter dated May 10, 2018. Since the representation of Priyansh was not as per directions of Hon’ble SAT, vide e-mail dated July 02, 2018, Priyansh Patodi was once again informed that no such representation is received by SEBI till date and acknowledged the receipt of his letter dated May 10, 2018 seeking personal meeting.

7. Though Priyansh Patodi failed to submit any representation in compliance with the directions of the Hon’ble SAT, in the interest of principles of Natural Justice, vide notice of hearing dated August 06, 2018, he was granted an opportunity of hearing on August 29, 2018 at SEBI. It is noted that Priyansh Patodi vide e-mail dated August 07, 2018 confirmed his attendance for the said personal hearing. However, Priyansh Patodi vide e-mail dated August 28, 2018 sought an adjournment on medical grounds. Considering the same, another opportunity of hearing was granted to Priyansh Patodi on November 14, 2018. However, vide e-mail dated November 12, 2018, Priyansh Patodi requested for adjournment of the said hearing on the ground of sudden demise of his uncle. Considering the same, a final opportunity of personal hearing was granted to Priyansh Patodi on December 27, 2018. It was also informed to Priyansh Patodi that in case he failed to attend the said hearing, the matter will be proceeded with on the basis of the material available on record. Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions

8. On December 27, 2018, Priyansh Patodi appeared before me and made the following submissions: i. That from the total amount directed by SEBI to be refunded to the investors, Rs.14 lakh has not been collected from investors. The said Rs.14 lakh was deposited by him for his EMIs of car loans (2 in nos.) and two wheeler loans (3 in nos.).  Priyansh Patodi was advised to submit trail of funds for Rs.14 lakh demonstrating from where the money came. Priyansh Patodi submitted that he has his own IT business. He was advised to submit Income Tax Return for his other business.

ii. From the perusal of the Axis Bank statement for his account no. 910020033227577, it was shown that some of the transactions have been reversed but SEBI has included them to arrive at the final amount to be refunded to the investors.  Priyansh Patodi was advised to highlight the same and submit all the said reversed transactions.

iii. Priyansh Patodi submitted that some of the amount collected was refunded to the investors before the final order was passed.  He was advised to submit proof for the same along with a CA certificate.

iv. Priyansh Patodi submitted that MMF Solutions has only one bank account. The said account was opened with Axis Bank in the year 2010.  He was advised to submit bank statement from the account opening date till the hearing date.

v. Upon query as to when can he start refunding the investors, Priyansh Patodi stated that he can start refunding the investors from February, 2019 onwards.

Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions

 He was advised to issue a newspaper advertisement for the purpose of said refund. Further, he was directed to submit a plan for refund and a consolidated list of investors with the respective amount collected from them.

vi. Priyansh Patodi was granted time to submit aforementioned details on or before February 15, 2019.

9. Though Priyansh Patodi was specifically advised to submit documents to substantiate his claim as to the actual amount due to his clients/investors within February 15, 2019, I note that on February 14, 2019 Shri Priyansh Patodi sent an informal e-mail which reads as “hello, please update us the status of our matter and next steps. Thanks”. I note that the said e-mail did not contain any information/ details/documents as to the repayment modalities as sought from him during the personal hearing. Though I note that Shri Priyansh Patodi failed to submit the information as detailed above despite being granted adequate time as sought by him, in the interest of principles of natural justice, vide e-mail dated July 16, 2019 one more opportunity was granted to him to submit the information/details sought during the personal hearing within a week’s time. In addition to the above details, vide e-mail dated July 17, 2019, Priyansh Patodi was also advised to provide the source of funds along with proof with respect to the plan of refund and also proof of amount refunded investor wise, within a period of one week.

10. In response, Priyansh Patodi vide e-mail dated July 17, 2019 contended that he has submitted trail of funds during the hearing and sought further time for collecting the documents. However, no such documents relating to trail of funds was given by him during the time of hearing. The said request was acceded to and vide e-mail dated July 26, 2019, Priyansh Patodi was granted a final opportunity to submit the documents as directed by the Hon’ble SAT and also documents sought during the personal hearing and through e-mail dated July 17, 2019. Priyansh Patodi was specifically informed that a last opportunity was granted to him to make the final submissions and no more request for extension of time would be entertained and in case of failure to furnish the documentary evidence, the matter would be proceeded with based Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions on the materials available on record.

11. Vide e-mail dated July 30, 2019, Priyansh Patodi submitted the following: 11.1 As regards the trail of funds for Rs.14 lakh demonstrating from where the money came, Priyansh Patodi submits as under: This money came from the customers who paid us in the same axis bank account where we deposited it back for the bank loan EMI's Personal Payment Bills and apart from this we took a personal loan from a local company. 11.2 As regards Bank statement from date of account opening till the hearing date, Priyansh Patodi submits as under: We have requested the bank to give us the statement, since the account is closed they are unable to process our request. They said the account was in negative balance and due to no transactions they have closed the account. I went almost every day to get the statement but no one help me. I have also requested them to please give me this in written but they have denied me to do so. 11.3 As regards plan for refund and a consolidated list of investors with the respective amount collected from them, Priyansh Patodi submits as under: As mentioned currently I would be able to pay about 30000-35000 rupees monthly back to the investors. I have already asked the list of the customers and the phone numbers from cc avenue, I would pay the smallest investors first who paid 1000, 2000 etc. as I have requested for statement from cc avenue as mostly payment was made by client online on this payment gate way then have send me statements I have attached it also below but due to some errors I have not received name and contact details in that I have again requested them for same as soon as I will get that file I will start contacting clients and will start to repay and will also send you the same.

11.4 As regards issuance of newspaper advertisement for the purpose of said refund, Priyansh Patodi submits as under:

Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions

What is the alternative way apart from advertisement?, because the advertisement cost is a lot and it is impossible for me to do the ad and also the pay at the same time in one month. Your help would be highly appreciated. 12. Priyansh Patodi has also submitted the annexures viz., Axis Bank Account statements highlighting ATM Reversal during the period May 01, 2014 to November 29, 2014 (four pages), ITR for the assessment year 2015-2016 and CC Avenue (payment gateway) file viz., Transaction detail dated April 13, 2018 (An excel sheet containing details of registered id, tracking id, order-date time, order-card type, order status, order bank ref no. and order amount). As per ITR for the assessment year 2015-2016 his total income is assessed as Rs.2,68,700/-. ATM reversals as per the statement of Axis Bank are as under:  Cash Reversal of Rs. 20,000/- thrice on May 10, 2014  Cash Reversal of Rs. 20, 000/- on August 16, 2014  Cash Reversal of Rs. 20,000/- on August 23, 2014  Cash Reversal of Rs. 20,000/- on November 15, 2014  Total Rs.1,20,000/- cash reversal.

13. The issue that arise for consideration pursuant to the SAT Order is whether Priyansh Patodi has made a representation as per the direction of SAT and if made, whether any appropriate directions need to be issued.

14. I note that SEBI vide Order dated February 15, 2018 crystalized the liability of Priyansh Patodi to refund his clients as Rs. 64,26,952/- and any other amount received from the clients in respect of the unregistered Investment Advisory Services, unregistered Research Analyst Services and unregistered Portfolio Manager Services. I also note that vide the said Order, Priyansh Patodi was granted three months’ time to submit a certificate from a peer reviewed Chartered Account with respect to the completion of repayment. Though Priyansh Patodi failed to appear before SEBI during the 11B proceedings which was concluded vide SEBI Order Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions dated February 15, 2018, I note that he exercised his right to file an appeal against the said Order inter alia on the ground that he has already refunded substantial amount to the clients and also sought time to refund the balance amount payable to his clients/investors.

15. I note from paragraph 2 of the SAT Oder that considering the willingness of Priyansh Patodi to comply with the impugned SEBI Order, the Hon’ble SAT permitted him to make representation before SEBI within a period of three weeks from the date of the SAT Order. I also note that the Hon’ble SAT has specifically mentioned in its Order (paragraph 3) that the representation should contain details as to the amounts already paid to the clients and the mode and manner in which the Appellant-Priyansh Patodi would refund the balance amount to the clients.

16. I note that no such representation as directed by the Hon’ble SAT was filed by Priyansh Patodi. Instead he preferred to send a letter seeking an opportunity of personal meeting for making representation. Though the same was not in conformity with the directions of the Hon’ble SAT, in the interests of his clients/investors to whom money is due to be repaid, it was considered appropriate to grant an opportunity of hearing to Priyansh Patodi to make his representations. Priyansh Patodi sought adjournments for the hearings scheduled on August 29, 2018, November 14, 2018 and finally made his oral submissions/representation during the personal hearing on December 27, 2018.

17. During the hearing, Priyansh Patodi inter alia, submitted that out of the total amount directed by SEBI to be refunded to the investors, Rs.14 lakh was not collected from investors rather the same was deposited by him towards his EMIs of car loans (2 in nos.) and two wheeler loans (3 in nos.). Further, he has also submitted that some of the transactions were reversed by the Bank but SEBI has included those amounts to arrive at the total amount due to the investors. He has also claimed that some of the amount collected was refunded to the investors before the final order was passed. In this regard, Priyansh Patodi was advised to submit documentary Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions evidence to substantiate his claims. My findings as regards his claims are as under: 17.1 Priyansh Patodi has claimed that several transactions were reversed by the Bank, however, SEBI included the same for calculating the refundable amount to the clients. In this regard, Priyansh Patodi was advised to highlight the same and submit all the said reversed transactions.

I note that Priyansh Patodi vide e-mail dated July 30, 2019 submitted the statement of Axis Bank highlighting six instances of Cash reversal to the tune of Rs.20,000/- during the period from May 10, 2014 to November 15, 2014 totaling to Rs. 1,20,000/-. In view of the same, I am of the considered view that the amount due to be repaid to the investors as mentioned in the Final Order dated February 15, 2018 i.e. Rs. 64,26,952 stands modified as Rs. 63,06,952/-. 17.2 As regards the submissions of Priyansh Patodi that Rs. 14 lacs was deposited by him towards his loan repayment, I note that he was advised to submit trail of funds for Rs.14 lakh demonstrating from where the money came. During the hearing the argument of Priyansh Patodi was in essence that the said Rs. 14 lacs were not collected from Customers but came from his IT business. He was required to show the fund trail to substantiate that the money came from his IT business. He was also required to produce the copy of Income Tax Returns for his IT Business. However, he failed to submit both though he submitted his personal Income Tax Return for the Assessment Year 2015-2016 which shows taxable income of Rs. 2, 68, 700/- only.

Instead, in contradiction of his earlier stand, he submitted through his e-mail dated July 30, 2019, that the said amount came from his customers/investors. Even if his submissions is considered, he has not identified the trail of funds relating to which entries aggregate to the said Rs. 14 lacs from the copy of the bank account statements he has submitted. Further, he has not given any evidence to show that the said Rs. 14 lacs funds came from his own source of income and not from his customers. Therefore, Priyansh Patodi cannot be given the benefit of excluding the said amount of Rs. 14 lacs from the total amount required to be refunded.

Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions

17.3 As regards the claim of Priyansh Patodi that some amount was refunded to the investors, he was advised to submit proof for the same along with a certificate of Chartered Accountant. I note that Priyansh Patodi failed to submit the same, hence I am not inclined to give any credence to his claim of any refund before the passing of final order dated February 15, 2018. I also note from the SAT Order dated April 24, 2018 that he has submitted before the SAT that he had already refunded substantial amount to the clients. However, I note that he has not submitted any proof of such repayments before SEBI as directed by the Hon’ble SAT. The said fact coupled with his failure to provide the list of customers and the amount collected from them investor-wise, I note that such submissions of Priyansh Patodi can only be termed as misleading and a mere misrepresentation before the Hon’ble SAT. 17.4 Further, as regards the refund plan submitted by Priyansh Patodi, he was directed to submit a plan for refund and a consolidated list of investors with the respective amount collected from them. I note that Priyansh Patodi failed to submit the same.

I also note that he has not given any list of his clients and the amount of money collected investor wise. Instead vide his reply dated July 30, 2019, he has submitted that he will collect the investor details from CC Avenue (a payment gateway). It is surprising to note that how Priyansh Patodi effectively managed to render his services to his clients even without maintaining such vital information. Further, I note that though he suggested a plan of refund (i.e. refund to the small investors first and then monthly repayments to the tune of Rs. 30,000 to 35,000/-) after SEBI’s reminder e-mail dated July 16, 2019, the said plan does not show the source of funds with any documentary evidence as required vide e-mail dated July 17, 2019. Therefore, his proposal does not flow from any credible source of income. Coupled with this fact, I note that he has not given any list of clients and the money collected from him investor wise. In the absence of said fact and lack of proof of credible source of income, I am not inclined to accept the repayment plan as the same is not workable and implementable by him, especially when no proof of payment was made by him either in respect of those payments claimed to have been made by him prior to the order dated February 15, 2018 or after February, 2019 as proposed by him.

Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions

17.5 As regards his request for seeking an alternative mode of communication to his clients other than through newspaper advertisements, I note that as per his recent reply vide e-mail dated July 30, 2019, he has not given the details of his own customers. He has stated that he would procure the same from CC Avenue (payment intermediary). Since he does not have details of customers and customers’ contact details, the only way, the investors can be reached by him is through the newspaper publication. Therefore, the same is an essential requirement for the purpose of repayment. In view of the same, his request seeking an alternate mode for newspaper publication cannot be accepted.

18. I note that the conduct of Priyansh Patodi as evident from the above detailed facts is detrimental to the interests of his innocent clients/investors. I note that, non-filing of representation setting out details of amount already repaid, and not giving the details of his own customers and the list of money collected investor wise, seeking adjournments in one pretext or another and failure to furnish any implementable repayment plans, failure to issue advertisements for the purpose of repayments, etc. are nothing but a ploy to delay the repayments to the clients/investors. By virtue of the said acts and omissions, I am of the view that Priyansh Patodi has not only flouted the directions of SEBI in respect of repayments to the clients but also disregarded the directions of the Hon’ble SAT.

19. Upon consideration of the facts and circumstances as detailed above, I am of the view that Priyansh Patodi has failed to furnish any credible representation as to repayment plan and also failed to furnish the details of repayments already made by him as directed by Hon’ble SAT or any evidence of such payment. However, considering the documentary evidence regarding the claim of cash reversals by Priyansh Patodi, I find that the amount directed to be refunded vide Order dated February 15, 2018 stands modified as Rs. 63,06,952/-. In view of the above discussion and failure of Priyansh Patodi to make representation as per the direction of Hon’ble SAT, I find that no further direction is warranted in the matter. Accordingly, the representation of Priyansh Patodi is disposed of. SEBI is at liberty to implement the final order dated February

Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions

15, 2018 in line with the disposal of the representation.

20. This Order shall be read with the Final Order dated February 15, 2018. This Order shall be sent to Priyansh Patodi.

DATE: AUGUST 08, 2019 MADHABI PURI BUCH PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in respect of representation by Shri Priyansh Patodi Proprietor of MMF Solutions