Market regular Securities and Exchange Board of India (SEBI) on Wednesday (September 7) imposed a penalty of Rs 2 crore on Yes Bank founder Rana Kapoor under the provisions of Section 15HA of SEBI Act for mis-selling the private sector lender's AT-1 bonds.

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In the event of failure to pay the penalty within 45 days of the receipt of this order, recovery proceedings may be initiated for the realisation of the amount along with interest.

The case relates to mis-selling of the bank's AT-1 bonds to retail investors by its officials. It was alleged that the bank and certain officials did not inform investors of the risk involved while selling the AT-1 (Additional Tier-1) bonds in the secondary market. The sale of AT-1 bonds started in 2016 and continued till 2019.

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In its 87-page order, SEBI said Kapoor was overseeing the entire operation relating to the secondary sale of AT-1 bonds, taking regular updates from the team and giving them further instructions to increase the sales, thus creating pressure on the officials to ramp up the sales.

Further, SEBI said Kapoor was responsible for acts of misrepresentation or suppression of material facts, manipulation, and mis-selling of AT-1 bonds of Yes Bank to individual investors. Also, Kapoor pressured officials of the private wealth management (PWM) team to devise a devious scheme to dump the AT-1 bonds on hapless customers of Yes Bank.

Back in April last year, the regulator penalised Yes Bank and then officials of the private wealth management team, after finding that the lender had misrepresented the AT-1 bonds by comparing them with FDs without disclosing the inherent risks associated with the bonds and thereby manipulating the investors into buying such risky bonds.

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"The said action on the part of YBL was a knowing misrepresentation of the truth or concealment of material fact in order that another person act to his detriment and an active concealment of a fact having knowledge or belief of the fact and a representation made in a reckless and careless manner," the SEBI said.

According to SEBI, 1,346 individual investors had invested approximately Rs 679 crore in the AT1 bonds, out of which 1,311 individual investors were existing customers of Yes Bank, who invested approximately Rs 663 crore in these AT1 Bonds.

Further, 277 customers had existing fixed deposits with Yes Bak and the bank prematurely closed their existing FDs and reinvested an amount to the extent of Rs 80 crore in these AT-1 bonds, which were subsequently written down.

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Yes Bank, whose board of directors were reconstituted and fresh capital was infused in 2020, had issued AT-1 bonds in the nature of debentures in December 2013, December 2016, and October 2017. These bonds were written down as part of reviving the bank in 2020.

SEBI investigated the matter to ascertain whether there was any violation of regulatory norms in respect of selling these AT-1 bonds of Yes Bank to retail investors during the period from December 1, 2016, to February 29, 2020.

The move came after multiple complaints from investors who had invested in the AT-1 bonds issued by the bank. Following SEBI's direction, the bank approached the Securities Appellate Tribunal (SAT), which granted an interim stay on the capital market regulator's order in May last year.

The tribunal had noted that the central government imposed a moratorium on Yes Bank and appointed an administrator, superseding the board of directors.

(Edited by : Shoma Bhattacharjee)