Motilal Oswal: The King of Frauds

• Exposed in NSEL Scam: Mis-selling and Benami Deals

• SFIO & EOW Nail MOFSL in Multi-Crore Fraud

• SEBI Declares Motilal Oswal ‘Not Fit and Proper’

Unmesh Gujarathi
Sprouts News Exclusive
Contact: +91 9322755098

Motilal Oswal Financial Services Ltd. has faced multiple regulatory actions for mis-selling, KYC manipulation, and misuse of client funds, especially in the ₹5,600 crore NSEL scam. Declared ‘not fit and proper’ by SEBI in 2019, MOFSL continues to operate despite SFIO, EOW, and SEBI findings exposing serious governance and compliance failures.

Motilal Oswal Financial Services Ltd. (MOFSL), once perceived as a trusted name in financial services, has been repeatedly embroiled in high-profile scams and regulatory breaches. Among the most damaging controversies is its involvement in the ₹5,600 crore National Spot Exchange Ltd. (NSEL) scam.

Investigations by the Economic Offences Wing (EOW) of Mumbai Police and the Serious Fraud Investigation Office (SFIO) revealed that MOFSL played a pivotal role in misleading investors by aggressively mis-selling NSEL contracts to clients under the guise of risk-free arbitrage opportunities. These contracts were in fact unregulated forward contracts, completely violating norms.

SFIO’s findings, along with client testimonies and forensic audits, indicated that Know Your Customer (KYC) manipulations, client code modifications, and benami transactions were common practices used by MOFSL to circumvent regulatory oversight. Moreover, black money infusion via its NBFC arm was reportedly routed through the NSEL platform to conceal the source of funds.

SEBI Declares MOFSL Not ‘Fit and Proper’ to Act as Commodity Broker

In February 2019, following repeated recommendations from the SFIO and EOW, the Securities and Exchange Board of India (SEBI) declared Motilal Oswal “not fit and proper” to function as a commodity derivatives broker. This was a major reputational blow for the group, which had long positioned itself as a key market participant in equity and derivatives.

SEBI, in its order, cited MOFSL’s systemic lapses and breach of client trust in dealing with NSEL contracts. The regulator noted that MOFSL had intentionally misled clients, failed to conduct due diligence, and displayed a “wilful disregard” for investor interest. The declaration meant MOFSL could no longer operate in commodity derivative segments regulated by SEBI.

Notably, IIFL, Anand Rathi, Geojit, and other major brokerages were also implicated, but MOFSL’s involvement was termed as “organised and active,” meriting stricter action.

₹25 Lakh Fine for Misuse of Client Funds

In May 2022, SEBI further penalized Motilal Oswal with a ₹25 lakh fine for misutilization of client funds and inaccurate margin reporting. The regulator found that MOFSL had violated multiple provisions of the SEBI Stock Brokers Regulations, 1992, and SEBI Circulars on Client Money.

According to SEBI’s investigation, the brokerage had used client funds for proprietary trading and had failed to segregate client assets from its own. This was in clear contravention of regulatory mandates that seek to protect retail investors from systemic risk.

Such practices not only undermine market stability but also place lakhs of retail investors at potential financial risk—especially when conducted by large institutions like MOFSL.

Whistleblower Allegations and Internal Governance Red Flags

Multiple whistleblower complaints have surfaced over the years, alleging deep-rooted corporate governance failures within MOFSL. Anonymous letters sent to SEBI and the Ministry of Corporate Affairs (MCA) have alleged insider trading, manipulation of profit figures, and conflict of interest in fund management operations.

In one instance, it was alleged that Motilal Oswal’s portfolio management schemes (PMS) misrepresented historical returns and risk factors. While SEBI initiated informal inquiries, no formal penalty has yet been issued. However, the recurrence of such complaints signals persistent opacity in internal governance.

Sprouts News Investigation Team (SIT) reached out to former employees, many of whom described the internal environment as “compliance-averse” and “target-driven to the point of breaking norms.”

Also Read: Electoral Bond Donor MEIL Accused in Mongol Refinery Project Scam.

Related Article: Motilal Oswal Faces Backlash Over Alleged Mismanagement.

Mutual Funds Under Scanner: Mis-selling to Seniors & NRIs

Motilal Oswal’s mutual fund arm has also not remained untouched by controversy. There have been credible complaints of mis-selling of thematic funds and aggressive equity-linked products to senior citizens and NRIs, without adequate risk disclosures.

In one case from 2021, an NRI investor based in Dubai alleged that he was sold a high-risk, small-cap fund under the pretense of a fixed-return product. The complaint was escalated to SEBI’s SCORES portal, where the matter is reportedly still under review.

Sprouts SIT Calls for White Paper on Broker Malpractices

In light of repeated violations and regulatory censure, the Sprouts News Investigation Team (SIT) strongly advocates for the Finance Ministry and SEBI to issue a white paper on broker malpractices, specifically calling out repeat offenders like Motilal Oswal.

It is imperative that client awareness, corporate disclosures, and stringent accountability become the norm in financial markets—especially when large retail pools are involved.

MOFSL’s repeated infractions raise serious concerns about the integrity of India’s capital markets ecosystem and the effectiveness of current enforcement mechanisms.

Key Allegations Against Motilal Oswal

Despite Regulatory Heat, Motilal Oswal Thrives — Sprouts SIT Calls for Judicial Probe into Broker Malpractices and Regulatory Arbitrage

Motilal Oswal Financial Services Ltd. continues to operate across various segments—retail broking, asset management, private equity, and lending—despite being under the scanner of multiple regulatory and investigative agencies. The firm’s ability to withstand reputational damage, and retain licenses in other segments, raises concerns about regulatory arbitrage.

For the sake of investor trust and capital market health, Sprouts News Investigation Team (SIT) reiterates its call for a judicial or parliamentary probe into multi-layered malpractices by brokers like MOFSL, whose financial clout has too often shielded them from meaningful accountability.