Sebi Cancels LFS Broking Registration, Bans MD Saiyad Rahaman for Violating Market Norms

The Securities and Exchange Board of India (Sebi) has revoked the registration of LFS Broking. Additionally, Saiyad Jiyajur Rahaman, the firm's Managing Director, is barred from associating with any registered intermediary for five years due to market norm violations. Sebi's decision also affects LFS Broking's roles as a stockbroker, portfolio manager, depository participant, and research analyst.

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Sebi's Whole Time Member Kamlesh C Varshney stated in a 56-page order, "I note that since the Noticee No. 2 Saiyad Jiyajur Rahaman has not acted with integrity, and honesty and has not displayed ethical behaviour and fairness, he ceases to be a fit and proper person in terms of the Intermediaries Regulations." This statement underscores the lack of ethical conduct by Rahaman.

Misuse of Registration

The regulator discovered that LFS Broking misused its Sebi registration to promote LFS-PMS and another unregistered entity, MOL Commodities. These entities collected significant funds from investors, which were then routed through various bank accounts controlled by Rahaman. Specifically, transactions amounting to Rs 9.3 crore were traced to Rahaman's accounts, including transfers to LFS Broking's proprietary trading account.

Sebi's investigation revealed that LFS-PMS mobilised Rs 266 crore from 6,219 clients. Many of these clients did not execute any trades in the securities market. The accounts of LFS-PMS and MOL Commodities showed substantial financial activity without proper agreements or regulatory compliance.

Investor Deception

Sebi noted that LFS Broking allowed the use of its registration certificates in collusion with Rahaman to deceive investors for illegal fund mobilisation. The brokerage firm failed to meet the criteria prescribed under the Intermediaries Regulations. This misconduct led to significant financial transactions without adhering to regulatory norms.

The order followed complaints received by Sebi about LFS Broking and PMS Services LFS-PMS, a proprietorship firm of Rahaman. These complaints indicated that an investment scheme was being run under the guise of legitimate registration granted by Sebi to the brokerage house. The scheme assured returns to investors but operated outside regulatory compliance.

Regulatory Actions

The present proceedings stem from an enquiry report dated September 20, 2023. The Designated Authority (DA) recommended cancelling the registration granted to LFS Broking in various capacities. It also suggested barring Rahaman from associating with any registered intermediary for five years.

Sebi's actions highlight the importance of ethical conduct and regulatory compliance in financial markets. By revoking registrations and barring individuals involved in misconduct, Sebi aims to protect investors and maintain market integrity.