Sucheta Dalal :Do Stockguru investors have a case against SEBI and RBI?
Sucheta Dalal

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Do Stockguru investors have a case against SEBI and RBI?  

November 15, 2012

Stockguru, a chain-money scheme, openly flouted various SEBI rules. Moneylife pointed this out in December 2010 and again in April 2011 but SEBI, under both former chairman CB Bhave and current chairman UK Sinha, and RBI took no action. Aggrieved investors can possibly file a case of gross regulatory lapse against SEBI and RBI

Sucheta Dalal

Promoters of Stockguru, a chain money scheme, have been arrested by the Delhi Police's Economic Offences Wing (EOW) for duping over two lakh people from Delhi, Uttarakhand, Himachal Pradesh, Sikkim, Rajasthan, Madhya Pradesh and Maharashtra. This scheme has been going on for sometime, right under the nose of the market regulator Securities and Exchange Board of India (SEBI) but despite two reports in Moneylife highlighting this illegal scheme, the market regulator and Reserve Bank of India (RBI) chose not to act.

In December 2010, Moneylife had reported about the dubious modus operandi of Stockguru.India and advised investors to stay away from investing in the company. (This MLM openly flouts SEBI norms and offers 120% returns in a year through stock market investment!).

The article, described the modus operandi of Stockguru and precisely why it fell foul of regulations even before it duped investors and ran away. Timely action by the regulators then could have saved investors’ money. Here is what Moneylife said on 27 December 2010, when chairman CB Bhave headed SEBI.

Stockguru.India and its group companies are self-styled investment advisors, offering Rs22,000 on an investment of Rs10,000 in one year.

We said, “As if there were not enough potholes on the stock market route, here is a multi-level marketing (MLM) company that is promising 20% returns per month! The company Stockguru.India describes itself as the country’s ‘Premier Financial Consultancy’, offering trading solutions in equity, derivatives, currency futures, commodities trading, initial public offerings (IPOs), insurance (life/non-life), general insurance, mutual funds, portfolio management services, terminal handling all under one roof.” (the company’s portal) had only one standard line of advice in all market situations—whether it is a bull market or a bear market, range-bound market or volatile market. It said, “We advise our clients to buy shares at a low price and sell them at a higher price. Selecting the right share at the right price and entering the capital market at the right time is an art. We help all our clients to make huge profits by investing in good shares for very short/short/medium/long-term depending upon the client’s requirements. Trading/investment for minimum intraday to T+5 days may give you a handsome return of 5% to 25% on your capital investment.”

This MLM company’s investment (!) plan was simple. You pay Rs10,000 as investment and Rs1,000 as registration fees. There is no limit on the maximum amount one can invest. offered a return of 20% per month for up to six months and the principal amount invested is returned in the next six months. It also gave post-dated cheques of the principal and a promissory note as security. In short, on an investment of Rs11,000, the company offers to pay you Rs12,000 in six months and the rest Rs10,000 over the next six months, a total of Rs22,000 or a 120% return in a year.”

Stockguru lured investors with an additional 3% per month income through a binary plan of 27 levels. Binary plans of MLM companies are the new clients you bring in, who are placed below you in rank in a right and left combination. It’s nothing but a trap. All MLM companies promise say you rewards if you complete the left leg-right leg cycle. But in practice this does not happen. A majority of those participating fall in the category where they lack a single member in one leg, or a member becomes inactive thus freezing the spread of that leg and the business.

How do MLM companies operate without a trading license from the regulators, SEBI and RBI? Why was there been no action against Stockguru.India, and its subsidiaries by SEBI or RBI? Market regulator SEBI had, on its part, issued SEBI (Investment Advisers) Regulations, 2007 (the ‘Draft Regulations’) to regulate the advisory activities of investment advisers in India. But till date it has remained as a draft only.

According to the SEBI Act, 1992, “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 the 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.” In addition, the Act says, “No person shall sponsor or cause to be sponsored or carry on or caused to be carried on any venture capital funds or collective investment scheme (CIS) including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations.”

Stockguru.India and all its group companies openly flouted the norms and rules. It was not registered with SEBI as investment adviser and still offers to trade on behalf of its clients. According to information available over the internet, Stockguru.India and its chairman and managing director Lokeshwar Dev, will help anyone to open a demat account with Sharekhan so that they can manage the investor’s money.

We checked with Sharekhan and the brokerage said, neither Stockguru.India nor Lokeshwar Dev has any relations with or any demat account with them. In addition, neither Stockguru.India nor any of its group companies possess a certificate of registration from SEBI for CIS, but they are still collecting huge amounts from clients under the pretext of stock market investment. Are the regulators sleeping on this one?

Moneylife didn’t stop at that. We wrote again on 9 April 2011: Stockguru.India allegedly dupes 2 lakh investors of over Rs1,000 crore. By this time, Lokeshvar Dev had apparently absconded and investors were running helter-skelter for their money. SEBI was now headed by a new chairman, UK Sinha.

On 18 May 2011,
Moneylife Foundation sent a representation to the prime minister of India and all the financial regulators seeking urgent action against MLMs. While urging the government to ban MLMs altogether in the aftermath of the devastating losses caused by SpeakAsia, a Singapore-registered company, which raised well over Rs1,300 crore in less than a year.  We wrote: “Unlike several other countries, MLM schemes are not banned in India. Hence, schemes like City Limousine, Stockguru and GoldQuest could escape with millions. None of the financial watchdogs in India are responsible for monitoring such schemes, so there is every chance that SpeakAsia and its clones like Ram Survey and FLC Online can get away after cheating millions of their savings”. Here is a link to the memorandum:

In the latest issue of Moneylife magazine we wrote that the government may finally be in a mood to tighten legislation against MLMs. Will they? Or is it more talk once again? After all, MLMs are funding political parties and have turned extremely powerful. Here is the crux of the problem: Moneylife has persistently written about how Ponzis, chit funds or multi-level marketing (MLM) schemes have been looting ordinary Indians through their false promises of extraordinary returns. An international consultant to MLMs writes to say, “Your country is overrun with pyramid schemes.” True, but so long as they are close to political parties, the government doesn’t seem to care. It is a well-known fact that founders of Ponzis and MLMs are the primary financiers of regional parties and derive their own financial muscle through these connections. They are now buying regional television channels and acquiring stakes in print publications to enhance their clout. The founder of one such Ponzi network, who has operations and political links with two state governments, has even bagged a nomination to the Rajya Sabha.

While the EOW has arrested the promoters of Stockguru, there is enough of documented evidence this time of gross r egulatory failure of various agencies, primarily SEBI, under two different chairmen and RBI. Will Stockguru investors file a case against these two callous regulators?

-- Sucheta Dalal