Interim Order Against Unregistered Investment Advisory and Portfolio Management Services by Stark Investments and Others

[Image omitted. See the official document.]

WTM/AS/WRO/WRO-DIV-3/32505/2026-27

SECURITIES AND EXCHANGE BOARD OF INDIA
EX-PARTE INTERIM ORDER

UNDER SECTION 11(1), 11(4), 11B(1) AND 11D OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992

In respect of –

(The above-mentioned Entities are hereinafter referred individually by their respective names / Entity No. and collectively as “Entities”)

In the matter of Unregistered Investment Advisory and Unregistered Portfolio Management Services activities by Stark Investments and others.

I. BACKGROUND

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) was in receipt of 16 unique complaints alleging unregistered Investment Advisory (hereinafter referred to as “UIA”) activities and unregistered Portfolio Management Services (hereinafter referred to as “UPMS”) by Ms. Surabhi Chauhan, Mr. Zahin Ismail Jessani and/or through Stark investments and Starkblue Venture LLP. Stark Investments is a partnership firm of Mr. Zahin and Ms. Shakuntala (Mother of Ms. Surabhi Chauhan) with 50% controlling interest each. Ms. Surabhi and Mr. Zahin are the designated partners and authorised signatories in Starkblue Ventures LLP.

2. On perusal of the complaints, some of which were received from the partners of Starkblue Ventures LLP, it was prima facie observed that the Entities were engaged in providing investment advice and portfolio management services without obtaining the mandatory SEBI Registration. The matter was taken up for detailed examination. The focus and purpose of the said examination was to ascertain whether the Entities were engaged in offering Investment advisory / Portfolio management services without obtaining the mandatory registration from SEBI, as statutorily required under the provisions of the Securities and Exchange Board of India Act 1992 (hereinafter referred to as the “SEBI Act”) read with the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013 (hereinafter referred to as the “IA Regulations”) and the Securities and Exchange Board of India (Portfolio Managers) Regulations, 2020 (hereinafter referred to as the “PMS Regulations”). The said examination was also aimed at determining whether the acts of the Entities were in violation of provisions of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the “PFUTP Regulations”) or any other rules and regulations framed by SEBI.

3. The examination of complaints prima facie revealed a common pattern of soliciting investments by Entity No. 1 and 2 from investors by entering into Investment Advisory Agreements through Entity No. 3 and operation of UPMS, either directly by Entity No. 1 and 2 and/or through Entities created/operated by them viz. Entity No. 3 and 4. The investors were tempted to invest on the basis of representations claiming the use of proprietary quantitative models, algorithm-based trading systems, stringent risk-management protocols and assured downside protection. For supporting their claims, performance(s) of the funds recommended by the Entities were shared with investors on a quarterly basis indicating better returns as compared to the benchmarks such as Nifty-50. The investment recommendations to the investors relating to investment products including securities were provided on a regular basis through Whatsapp chats and Excel spreadsheets, performance reports, etc. The activities were carried out in such a way and manner that gave a reasonable impression to the investors of a formalised business activities.

4. The examination also revealed that in order to solicit investments from various investors, a purported exclusive partnership was also offered to them in Starkblue Venture LLP, which claimed to offer high returns with lower volatility. The investments were solicited and marketed under the name “SQAR” (Stark Quantitative Absolute Return) Strategy. The investors were made as partners in the firm (Entity No. 4) and the funds were mobilised from them, which were pooled into a common corpus in the name of Starkblue Venture LLP and managed under a common investment strategy. Entity No. 1 and 2 were the designated partners of the said LLP and all material decisions relating to deployment of funds, execution of trades, risk management and operation of the investment strategy remained under their control. The investors, on the other hand, merely remained the passive contributors and had no role in the day-to-day management and control of the common investment corpus.

5. It was also noted that on several instances, investors were prompted to open their trading accounts with SEBI registered Stock Brokers such as IIFL, Zerodha, etc. and thereafter their account credentials including the user name, passwords, email access and/or OTPs details were procured by Entities No. 1 and 2.

6. To summarize, the following modus operandi (discussed in detail in later part of the Order) was adopted by entity No.1 and 2 through their Entities viz. Entities No. 3 and 4.

a) From September 2020, prospective clients were on-boarded and UIA Services were provided to them. For allegedly providing investment advisory services, mandate agreements were signed with the clients.

b) Allegedly, UPMS were also provided by Entities No.1 and 2 to their clients by offering account handling services. For providing these services, investors/clients were solicited to share their trading account login credentials including user ids, passwords and OTPs.

c) Subsequently in February 2022, Starkblue Venture LLP was incorporated with Entities No. 1 and 2 as the designated partners. Through Starkblue Venture LLP, exclusive partnership(s) were allegedly offered to the clients/investors and money was mobilized from them in exchange for the purported partnership. The monies were collected in the name of Starkblue Venture LLP and invested in the securities market.

II. ISSUES FOR CONSIDERATION AND PRIMA FACIE FINDINGS

7. On a perusal of various agreements and marketing materials, which were gathered during the examination, particulars of bank accounts, bank statements, correspondences with the investors/clients, MCA database, and other material on record, the following issues arise for determination in the instant matter.

A. Whether the services offered by the Entities constitute investment advisory activities and/or portfolio management services?

B. If the answer to issue A is in the affirmative, whether the Entities have prima facie violated any provisions of the SEBI Act, IA Regulations, PMS Regulations and PFUTP Regulations?

C. If the answer to issue B is in the affirmative, what directions are required to be issued against the Entities for the prima facie violations?

8. I shall now deal with the above mentioned issues in light of the material brought on record pursuant to the preliminary examination conducted in the matter.

9. Examination revealed that Surabhi Chauhan and Zahin Jessani were carrying out their activities through Stark Investments by executing mandate agreement(s) with their clients. On perusal of one of the said mandate agreement, the following has been noted:

9.1. The mandate agreement was written on the purported letterhead of M/s Stark Investments. On one instance, it was noted that the said agreement was shared with one of the clients by Surabhi Chauhan through her email-id - Surabhi@stark-investments.in, which was also CCed (i.e., copy marked) to Zahin Ismail Jessani email id- zaheen@stark-investments.in.

9.2. The subject of the said agreement was “Mandate to act as financial advisor to XXXX (“the Client”) pertaining to investment planning and management activities”.