SEBI penalizes real estate fund managers and trustees who fail to liquidate and return funds to investors

To bring cheer to many investors at the end of the year, capital markets regulator Securities and Exchange Board of India (SEBI) has fined Unitech Advisors (India) Pvt Ltd and its two directors Ajay Rs 1 billion. imposed. and Sanjay Chandra for failing to liquidate three real estate funds despite multiple contract extensions years ago. The amount shall be paid jointly by them.

SEBI has found numerous violations by the fund house, now known as Aurum Asset Management Ltd. Apart from not completing the scheme on time, it was observed that Unitech Advisors had invested investors’ funds in its group companies and made fraudulent investments. Despite the decision, the majority of investors have not yet returned their funds.

1 million to Mr. Sanjay Chandra, Mr. Hitendra Malhotra, another director of the company, and Mr. Deepak Bajaj, director of Unitech Realty Investors (India) Ltd. and the next director nominee. A penalty of Rs. 1,000 was imposed, to be paid jointly by these persons. Unitech advisor to the investment committee of the fund house. If they fail to provide information or return the documents, each person will have to pay 333,000 rupees.

Hitendra Malhotra and Deepak Bajaj were also slapped with an additional fine of Rs 1 million to be paid jointly. It costs Rs 50,000 each. This penalty is for failure to rectify investor complaints. SEBI has also imposed a fine of Rs 1 million each on the fund house’s trustees – Vijay Turshan, Mahesh Kumar Sharma and Rakesh Dhingra.

Additionally, the market regulator has directed Unitech Advisors to liquidate three real estate funds within six months, transparently value the underlying assets to determine their net asset value (NAV) and return funds to unitholders. did. Based on this, investors can decide whether to exit using the in-kind distribution method or at NAV. Intraspecies distribution means that the assets of the fund are distributed to investors in proportion to their contributions.

Investors are still waiting for money

SEBI found that Unitech and its fund managers had illegally extended the duration of the scheme beyond the period mandated in the offer document. This fund he launched his three schemes in 2006-07: CIG Realty Fund I, II and IV. These are high-risk, high-reward, closed-end schemes sold to selected investors who deploy their funds over a period of time. This works similarly to a mutual fund’s new fund offer (NFO) period, but typically involves a few months to a few months or more in which fund managers get creative and take advantage of opportunities to “call in” new capital inflows. Lasts for years. Investments are made in either equity or debt instruments and aim to generate returns of 15-25%. However, the story turned out to be completely different.

Over time, much of such funds leaked out as several real estate projects across the country could not be completed on time. In October 2019, after scrutinizing the real estate funds’ offering documents, examining their communications with investors, and evaluating their portfolios from all perspectives, Moneycontrol identified the turmoil of several similar real estate funds in the country at the time. We conducted a two-month study to document it. Little information was available among the few investors who were willing to share data in hopes of getting their money back. These funds are opaque and little information is available in the public domain. CIG Realty’s fund was part of that story, but at the time, investors’ money was stalled. Moneycontrol tried to contact the directors and investment managers, but the then managing director, Sanjay Chandra, and his brother, Ajay Chandra, were in jail at the time on charges of defrauding homebuyers. Ta.

The SEBI order dated December 29 revealed their current whereabouts. When SEBI sent notices to them to appear in court and received no response, it scrutinized newspaper articles and found that they might be in judicial custody. SEBI sent letters to four Mumbai-based prisons earlier this year and found that Ajay Chandra is currently lodged in Taloja Central Jail near Mumbai. SEBI then sent a summons (show cause notice or opportunity for personal hearing) to Taloja Central Jail for Ajay. A reading of his December 30 order of SEBI shows that Sanjay’s whereabouts appear to be unknown and hence sent a summons to Sanjay’s last known address.

How did Unitech break the law?

CIG Realty Fund I and II were seven-year schemes, while CIG Realty Fund IV was a six-year scheme. According to the proposal document, the first two could have two one-year extensions, while CIG Realty Fund IV could have a two-year extension. According to the SEBI order, the final termination date (after extension) for the three funds was scheduled to be between 2016 and 2017, but it pointed out that most investors are yet to receive their funds.

SEBI also reiterated the earlier findings of the Securities Appellate Tribunal (SAT) that Unitech Advisors fraudulently misrepresented the approvals obtained from unitholders to extend the life of the scheme. According to the previous guidelines for venture capital funds (real estate funds were subject to it, but are now subject to the SEBI Alternative Investment Funds Regulations), if a fund wishes to extend its life, it must Approval from investors representing 75% is required. In addition to the written consent of the Trustee, the Fund.

Unitech Advisors conveniently misunderstood this rule, and SAT observed on its orders. The total number of unitholders who participated in voting was much lower (74, representing only 120.52 million rupees of contributed capital), but 208 unitholders had a total capital of 262.5 million rupees. contributed. Therefore, the consent of 75% of the investors present to exercise their voting rights was required, rather than the investors representing 75% of the total capital invested.

During SEBI’s investigation, some of the trustees passed resolutions for the fund to repay investors and exit the scheme, and the company was forced to sell its portfolio properties to raise cash to repay investors. He also claimed that he had submitted a plan to sell the division. However, SEBI observed that the trustees were unable to substantiate this by evidence that such properties were actually sold.

The SEBI order also said that despite repeated notices, the fund officials did not respond or appear before the order to defend the allegations. Apart from imposing financial penalties, SEBI also banned the officials and trustees from the capital markets for two years. The trustees will also be prohibited from holding any new trusteeship in alternative investment funds (AIFs) for one year and will have to terminate their contracts with mutual funds and other SEBI-registered entities for one year. .