Explained: Why Sebi has banned 2 portfolio firms from accepting new clients

Sebi on Monday barred Scient Capital and DGS Capital Management from onboarding new clients and accepting additional funds or securities from existing clients after they failed to maintain the minimum

The Securities and Exchange Board of India (Sebi) has barred  two portfolio management firms- Scient Capital and DGS Capital Management- from onboarding new clients or accepting additional funds or securities from existing ones, due to their failure to meet the minimum net worth requirement of Rs 5 crore, the market regulator said in two separate interim orders.

 

This requirement is mandated under the Portfolio Managers Regulations to ensure that firms have sufficient financial stability and resources to manage client funds effectively and safely.

 

Sebi’s investigation revealed that despite having had over two years since the January 15, 2023, deadline to meet this regulatory threshold, neither Scient Capital nor DGS Capital Management had taken meaningful steps toward compliance. In fact, Sebi found that Scient Capital had submitted misleading and incorrect compliance reports for the fiscal years 2023 and 2024, which indicated that their net worth did not meet the required regulatory standards.

 

In addition to this, there were other serious breaches. Scient Capital’s principal officer had failed to obtain the mandatory National Institute of Securities Market (NISM) certification for the period between September 2023 and the present, a requirement under Sebi’s norms. For DGS Capital Management, the firm failed to submit key reports, such as net worth certification, corporate governance reports, and portfolio manager regulations compliance reports for both FY23 and FY24. To make matters worse, DGS Capital's principal officer was also in violation of the NISM certification requirement from September 2023 to October 2024.

 

Sebi’s actions underscore the importance of full regulatory compliance for portfolio managers. The regulator's rules are in place to maintain transparency, accountability, and trust within the investment ecosystem. Failure to adhere to these rules poses risks not only to the firms involved but also to the investors who trust these firms with their hard-earned money.

 

The obligation to maintain the minimum required net worth is on a continuous basis, the regulatory said, adding that both the firms failed to do so and posed risks to investor funds.

 

Scient Capital had 86 clients with assets under management (AUM) of Rs 66.8 crore as of December 2024, while DGS Capital's AUM doubled from Rs 99.12 crore in January 2023 to Rs 201.03 crore in December 2024.

 

Sebi has given both firms 15 days to meet the minimum net worth requirement and remove the regulatory violations. Until then, neither firm will be allowed to onboard new clients or accept further funds from existing clients, ensuring that no additional risks are taken with investor money.