India’s securities regulator has said it will take no further action against HSBC over a complaint filed by an actress who alleged the bank had mismanaged her portfolio, despite concluding there had been “excessive churning” of her investments.
The Securities and Exchange Board of India (Sebi) confirmed yesterday that HSBC and Suchitra Krishnamoorthi had reached a settlement for an undisclosed sum.
However, based on its investigation of records and account statements from June 2004 to February 2011, Sebi found there had been “excessive churning in the portfolio of the complainant”.
“Considering the fact that the complainant’s grievance has been redressed amicably by [HSBC], and taking into account the fact that the proceedings were initiated … solely on the basis of the complaint, I am of the view that no further directions are required,” S. Raman wrote in the announcement.
In January, Krishnamoorthi filed a complaint with Sebi that she had suffered losses as a result of investment transactions done on her behalf by the mutual fund division of HSBC. She was a client of the bank’s retail banking and wealth management services.
On November 1 last year, Sebi issued HSBC with a notice detailing allegations that the bank had violated unfair trading regulations and code of conduct for mutual fund distributors
Sebi noted that Krishnamoorthi’s money had been invested into 38 different mutual fund schemes, and that some of the investments did not align with her risk profile.
“On many instances [of] redemption, proceeds were used to invest in similar mutual fund schemes,” Sebi wrote in the notice.
The total commission and charges earned by HSBC on these transactions came to Rs2.79 million ($46,700), Sebi said.
Responding to the notice, HSBC said it had only undertaken transactions for Krishnamoorthi in its capacity as a mutual fund distributor, not as a portfolio manager.
It further argued that its risk profiling of clients could not be seen as the “basis of all investment decisions” because the process was a subjective assessment, with standardised questions.
A hearing was convened before Raman and attended by HSBC’s advocate on March 4 this year.
The same month, local media reported that HSBC and Krishnamoorthi had reached a settlement.
On March 20, HSBC sent a letter to Sebi informing the regulator that the matter had been amicably settled.
Krishnamoorthi sent a similar letter to the regulator on March 20.
An HSBC corporate communications spokesperson declined to comment on the case.
In August 2009, Sebi banned a 2.25% entry-load fee that was levied on investors because churning to earn upfront commissions had become rampant.