SEBI bans two portfolio managers for not maintaining minimum net worth

Capital markets regulatory 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 required net worth.

The regulator in two separate interim orders said Scient Capital and DGS Capital Management had acted as registered portfolio managers without meeting the minimum net worth of ₹5 crore as mandated under the portfolio managers' rules.

"...despite lapse of more than two years since the end of the timeline for meeting the regulatory requirement of net worth (i.e., January 15, 2023), the entities (Scient Capital and DGS Capital Management) have shown no progress towards compliance," SEBI said.

The regulator observed that Scient Capital submitted incorrect and misleading compliance reports under portfolio managers' norms to SEBI for FY23 and FY24, as its net worth was not meeting the regulatory threshold for both years.

Additionally, Scient Capital's principal officer had not obtained the requisite National Institute of Securities Market (NISM) certification for the period from September 2023 to date, the order said.

According to SEBI norms, a portfolio manager needs to have a professional qualification in finance, law and accountancy, from a university or an institution recognised by a recognised university or a professional qualification by completing a postgraduate program in the securities market (Portfolio Management) from NISM.

Similarly, SEBI found that DGS Capital had neglected to file mandatory periodic reports (net worth certification, corporate governance report, and portfolio managers regulations compliance report) with the regulator for both FY23 and FY24.

Further, DGS Capital was also in breach of the statutory requirement regarding the principal officer's NISM certification, a violation spanning from September 7, 2023, to October 13, 2024, SEBI said.

The obligation to maintain the minimum required net worth is on a continuous basis, the regulator 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 ₹66.8 crore as of December 2024, while DGS Capital's AUM doubled from ₹99.12 crore in January 2023 to ₹201.03 crore in December 2024.

SEBI has directed Scient Capital and DGS Capital Management to meet the minimum net worth requirement within 15 days.

They have also been prohibited from onboarding any new client and accepting additional funds or securities from existing clients till they meet the applicable net worth.