Markets regulator Sebi on Monday imposed a penalty of Rs 25 crore on Yes Bank in the matter of misselling the lender's AT-1 bonds few years ago.
Besides, the watchdog has imposed a fine of Rs 1 crore on Vivek Kanwar, who was the head of the private wealth management team, and Rs 50 lakh each on Ashish Nasa and Jasjit Singh Banga.
The two individuals were part of the private wealth management team at the time of violation.
They need to pay the penalty within 45 days, Sebi said in its order.
Yes Bank Ltd (YBL) and certain officials devised the "devious scheme to dump the AT-1 (Additional Tier-1) bonds on their hapless customers", the regulator noted.
In order to make institutional investors subscribe to more capital of YBL, the noticees devised the plan to down sell the AT-1 bonds, held by the institutional investors, to individual investors, including their customers.
In this regard, they highlighted the AT-1 bonds as earning high interest vis-a-vis the Fixed Deposits (FDs), Sebi said.
Noticees refers to YBL, Kanwar, Nasa and Banga.
During the process of selling of the AT-1 bonds, individual investors were not informed about all the risks involved in subscription of these bonds.
"The omission on the part of the noticees to forward relevant documentary information to the investors/ customers indicates suppression of material facts so as to create a misleading appearance of the AT-1 bonds in order to lure the investors/ customers to invest in them," it said.
According to Sebi, misrepresentation perpetrated by them influenced the investors/ customers of YBL and they were lured into purchasing the bonds. In fact, some of the customers also closed the FDs and used the money to buy the AT-1 bonds.
All these actions amount to fraud perpetrated by them on the investors, Sebi said.
"The subsequent developments such as the financially unviable state of YBL leading to the writing down of the AT-1 bonds also clearly indicate that noticees were clearly aware of the risky nature of AT-1 bonds.
“Despite that, they aggressively engaged in the activity to down sell these bonds to the investors/ customers," the watchdog said.
By indulging in such activities, Sebi noted that they violated the provision of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices).
As per the show cause notice, 1,346 individual investors had invested about Rs 679 crore in the AT-1 bonds and out of them, 1,311 individual investors were existing customers of YBL, who invested about Rs 663 crore in these bonds.
Further, 277 customers had FDs with the bank and they prematurely closed their existing FDs and reinvested an amount to the extent of Rs 80 crore in the AT-1 bonds, which were subsequently written down, as per the regulator.
Sebi had conducted an investigation into the matter to ascertain whether there was any violation of regulatory norms in respect of selling of these AT-1 bonds of Yes Bank to retail investors by the noticees 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.
Photograph: Danish Siddiqui/Reuters