Sebi bans Crayon Capital from markets for 4 years in art fund case

Sebi has barred Crayon Capital Ltd from the capital markets for four years and asked the company to return the money collected from investors through an 'art fund' scheme.

The capital markets regulator found that Crayon was engaged in the fund mobilising activity from the public by floating or sponsoring the collective investment scheme (CIS) without obtaining a certificate of registration from it.

Crayon had launched a scheme -- The Crayon Capital Art Fund-- in 2006 and collected Rs 60.57 crore from 474 investors. The amount was utilised for investing and dealing in artworks, Sebi said in an order on Thursday.

Of Rs 60.57 crore, the company has repaid a little over Rs 59.52 crore as of January 22, 2021, and Rs 1.04 crore still remains to be repaid to 112 investors, it added.

The regulator noted that the scheme was closed in November 2012 and Crayon has not raised any further funds from investors.

Crayon, in its submission, contended that Crayon Fund being a private trust and the sponsor and the asset manager of the Crayon Fund is a partnership firm, cannot be registered with Sebi. It, further, said that the CIS Regulations are applicable only to the schemes made or offered by a company.

In its order, Sebi has asked Crayon to refund the balance amount to the remaining investors who are yet to be repaid, along with an interest of 10 per cent per annum.

The balance amount collected need to be refunded within a period of six months and the interest on the total amount collected need to be paid within nine months.

In addition, Crayon has been restrained from accessing the securities market and further prohibited from buying, selling or dealing in the securities market for four years or till the payment of amounts, whichever is later.

Further, Crayon has been prohibited from disposing of or selling any assets except for the purpose of making refunds to its investors.

"Crayon shall not launch any Collective Investment Scheme or any activity in the securities market without obtaining a certificate of registration from Sebi as required under the securities laws after the expiry of period of debarment," the regulator said.

The order would come into force with immediate effect. However, in view of the exceptional circumstances that emerged due to the outbreak of COVID-19 and consequential lockdowns imposed in different parts of the country, the direction related to refund would come into force on June 15, 2021, it added.

The order comes after Sebi had come across certain media reports and newspaper articles in 2006 regarding the mobilisation of funds from the investors under the scheme of 'art fund', with an objective to invest in the works of art.