Shares of IIFL Securities Ltd. fell as much as 18 percent on Tuesday after market regulator Securities and Exchange Board of India (SEBI) on Monday, June 19, barred the company from taking new clients for two years in respect of its business as a stockbroker.

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This comes after SEBI conducted a thematic inspection of the books of accounts of IIFL during the period of January 30 to February 3, 2014, wherein the records and the processes of IIFL during the period of April 1, 2011, to December 31, 2013, were inspected.

The regulator noticed that the actions of IIFL were not in compliance with the provisions of the code of conduct for stock brokers as stipulated by the Securities and Exchange Board of India (Stock Broker) Regulations, 1992.

SEBI found that IIFL failed to segregate its own funds from clients' funds, misused the credit balances in clients' funds for the benefit of clients having debit balances, and inappropriately designated the client bank accounts.

Further, the regulator decided to do a comprehensive inspection of the books of accounts of IIFL, which was conducted on a series of dates, including August 7, 12-13, 21-22, 26, 27, and September 19, 2014, simultaneously at four different offices of IIFL, including at its corporate office, two branch offices and the office of a sub-broker of IIFL.

According to the final SEBI order, out of the 45 client bank accounts examined during inspections, 26 client bank accounts were not titled as ‘client accounts’ by IIFL Securities. It was seen that funds were regularly being transferred from client bank accounts and clients’ dividend accounts to the control accounts of IIFL, which were managed and controlled by IIFL as its own bank account.

The inspection team also observed that funds lying in pool or control accounts were being used by IIFL for its own purposes including for the following types of transactions: Investments in and redemptions of mutual funds units, investments in bonds, metal trusts, and IIFL income opportunities fund.

Other observations were that IIFL was transferring to and from IIFL Commodities, transfers to and from for insurance, transfers to and from IIFL Wealth Management Ltd, transfers to and from IIFL Realty Ltd, transfers to and from foreign remittance expenses, transactions pertaining to fixed deposits, inter-corporate deposits, overdraft, bank charges (for XT-border wire FT) and transactions with other group companies of IIFL, etc and transfers to and from bank accounts categorized by IIFL as expenses and salary account.

The company is in the process of filing an appeal against the order before the Securities Appellate Tribunal (SAT). SEBI had carried out six inspections between 2011 and 2017.

Shares of IIFL Securities are down 12.8 percent at Rs 62.10. The stock has given up all the gains made so far this year.

(Edited by : Shoma Bhattacharjee)

First Published:Jun 19, 2023 6:15 PM IST