In a decisive regulatory move, the Securities and Exchange Board of India (SEBI) has barred Scient Capital and DGS Capital Management from onboarding new clients and accepting additional funds from existing ones. The decision comes after both firms failed to meet the mandatory net worth requirement of INR 5 crore for over two years.
Regulatory Breaches and Misleading Reports
SEBI, in two separate interim orders issued on Monday, found that both Scient Capital and DGS Capital Management had been operating as registered portfolio managers without meeting the required financial threshold since the deadline of January 15, 2023.
Despite repeated opportunities to comply, neither firm showed progress. Moreover, Scient Capital allegedly submitted misleading compliance reports for FY23 and FY24, falsely declaring adherence to portfolio management norms while failing to meet the net worth requirement.
Additionally, Scient Capital’s principal officer lacked the mandatory National Institute of Securities Markets (NISM) certification since September 2023, violating SEBI’s qualification norms for portfolio managers.
Similarly, DGS Capital Management failed to file essential regulatory reports for both FY23 and FY24, including net worth certification, corporate governance reports, and compliance reports. SEBI also found that its principal officer did not hold a valid NISM certification from September 7, 2023, to October 13, 2024.
Risk to Investor Funds and Immediate Action (WA:ACT)
SEBI emphasized that maintaining the minimum net worth is a continuous obligation for portfolio managers, as failure to do so poses risks to investor funds.
- Scient Capital managed assets worth INR 66.8 crore across 86 clients as of December 2024.
- DGS Capital’s AUM surged from INR 99.12 crore in January 2023 to INR 201.03 crore in December 2024, despite failing to meet regulatory norms.
Given these violations, SEBI has directed both firms to meet the INR 5 crore net worth requirement within 15 days. Until they comply, they cannot onboard new clients or accept further investments from existing ones.
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