Motilal Oswal Under SEBI Radar
• Unauthorized Trading Sparks Legal Fight
• Sprouts SIT Probes Brokerage Fraud
Unmesh Gujarathi
Sprouts News Exclusive
Contact: +91 9322755098
Sprouts News Exclusive
Contact: +91 9322755098
Investor Jasmine Madlani has accused LKP Securities and sub-broker Jatin Shah of unauthorized trading, forged documents, and SEBI violations under Motilal Oswal’s license. Transactions worth over ₹33 lakh remain unexplained. Advocate Pradnya Vairale issued legal notice demanding full disclosures. Regulatory action looms as Sprouts News Investigation Team (SIT) probes deeper.
In yet another alarming development in India’s financial markets, serious allegations have surfaced against Mumbai-based LKP Securities Limited and its sub-broker operations under Motilal Oswal Financial Services Ltd. The complaint, filed by investor Mrs. Jasmine Nitin Madlani through Advocate Pradnya Vairale, reveals disturbing patterns of unauthorized transactions, regulatory non-compliance, and potential violations of Securities and Exchange Board of India (SEBI) guidelines. The Sprouts News Investigation Team (SIT) has obtained exclusive access to the detailed legal notice sent to the broker and sub-broker entities.
Sub-Broker Allegedly Lured Investor with Promises of Guaranteed Profits
As per Advocate Vairale’s legal communication dated January 25, 2025, Madlani was first approached in October 2022 by Jatin Shah and his wife Neeta Jatin Shah, who represented themselves as sub-brokers operating under LKP Securities Limited—a sub-broker of Motilal Oswal Financial Services Ltd.
Shah reportedly assured the investor of complete transparency, fair trade practices, expert advice on share market investments, and significant profits. Influenced by these promises, Madlani signed multiple account opening forms, allegedly with several blank fields later filled without her knowledge. She transferred ₹50 lakh into the trading account on October 1, 2022, as per Shah’s advice.
Unauthorized Trading and Fabricated Transactions Exposed
Despite initial assurances, Advocate Vairale’s notice states that numerous transactions were executed without any explicit instructions from Mrs. Madlani. Upon confrontation, Shah allegedly dismissed concerns by promising lucrative returns in the long term. The Sprouts News Investigation Team (SIT) has reviewed portions of the ledger, which show entries of ₹33,58,944.19 being both credited and debited — raising questions about possible circular or unauthorized trading activities.
The investor repeatedly requested detailed statements, but only a single statement was shared on December 26, 2024. Other essential documents, including annual transaction summaries required for income tax filings, were reportedly denied despite multiple follow-ups.
SEBI Regulations Violated: No Recorded Calls or Written Instructions
A key contention raised in the notice pertains to violations of SEBI (Stock Brokers and Sub-brokers) Regulations, which mandate that all trading instructions must be recorded, preferably via landline or other verifiable modes of communication. However, Madlani claims that most instructions were either not sought or were discussed over mobile calls — which lack regulatory recording requirements.
Sprouts News Investigation Team (SIT) has independently confirmed that SEBI circulars insist on telephonic recording of trading instructions to protect retail investors and maintain audit trails. The sub-broker’s failure to comply may attract serious regulatory penalties if proven.
Forgery Allegations: Blank Forms, Withheld Documents, and Misuse of Authority
The legal notice highlights that signatures were obtained on multiple blank account opening forms under assurances that sub-brokers would fill correct details afterward. To date, neither LKP Securities Limited nor Motilal Oswal Financial Services Ltd. have provided these fully filled documents to the investor. Mrs. Madlani demands complete copies of all forms and supporting documentation to verify whether her consent was misused.
Further, the sub-broker allegedly refused to provide:
•Statements of funds movement
•Transaction-wise trade summaries
•Income summaries
•Security position statements
This non-transparency raises concerns about deliberate suppression of facts and possible financial misappropriation.
Principal Broker’s Fiduciary Duty Questioned: Broker Equally Responsible
Under Indian securities law, primary brokers are accountable for ensuring that their sub-brokers adhere to SEBI’s rules and maintain investor protection mechanisms. The notice asserts that Motilal Oswal Financial Services Ltd. bears equal responsibility for supervisory failure and systemic lapses.
Financial law experts consulted by Sprouts News Investigation Team (SIT) state that SEBI’s 2018 regulations hold the main broker accountable for all actions of its authorized persons and sub-brokers, especially regarding:
•Client KYC verifications
•Proper documentation
•Recorded trading instructions
•Transparent reporting
Investor Seeks Full Disclosures; Contemplates Legal and Regulatory Action
Advocate Vairale has formally demanded:
•Full disclosure of all financial statements and documents
•Copies of all account opening and transaction authorization forms
•Complete voice recordings of all client-sub-broker conversations
The broker and sub-broker have been given a 15-day deadline to respond. Failure to comply will prompt the investor to initiate further legal action, including complaints before SEBI, NSE, BSE, and criminal forums for possible financial fraud, cheating, and breach of trust.
Pattern of Mis-selling in India’s Financial Markets?
The Sprouts News Investigation Team (SIT) notes that this case reflects a growing pattern of sub-broker mis-selling, unauthorized trading, and misuse of retail investor trust in India’s capital markets ecosystem. Similar cases have previously led to SEBI suspensions, heavy penalties, and even criminal prosecutions.
In recent years, SEBI has tightened its surveillance over sub-broker operations, mandating stringent documentation, risk disclosures, and mandatory voice recordings. Yet, multiple retail investors continue to face violations of these very regulations — indicating persistent gaps in enforcement and oversight.
Regulatory Crackdown Looms: SEBI May Intervene
If SEBI finds merit in these allegations, LKP Securities and Motilal Oswal could face regulatory scrutiny, hefty monetary penalties, license suspension, or stricter operational restrictions under:
•SEBI Act, 1992
•Stock Brokers Regulations, 1992
•Prevention of Fraudulent and Unfair Trade Practices (PFUTP), 2003
Industry observers now await SEBI’s likely intervention as the case unfolds in the coming weeks.
The fraud came to light after a senior citizen who had opened a demat account with the firm in 2016 approached them, saying her shares were not visible in her account. While the account was declared dormant in July 2023 owing to lack of activity, the e-mail id, bank account and mobile number associated with the account were modified in August 2024.
The financial services firm subsequently conducted an internal probe, which found that Mandalia had likely filled the modification form by forging the customer’s signature and activated her demat account.
“From August 2024 to January 2025, he transferred shares worth ₹1.58 crore by encashing them to his bank account,” said an officer from Dadar police station, where a first information report (FIR) was registered against Mandalia based on a complaint by the firm’s legal manager.
Flashback:
In yet another shocking breach of investor trust in India’s financial markets, the Sprouts News Investigation Team (SIT) has uncovered a serious case of internal fraud involving a Motilal Oswal employee accused of siphoning off ₹1.58 crore from a customer’s demat account. The incident has raised serious questions about internal controls and cybersecurity protocols in leading brokerage houses.
Employee Manipulates Demat Credentials to Execute Fraud
According to the investigation led by Sprouts News Investigation Team (SIT), the accused, identified as 31-year-old Gaurang Mandalia, allegedly gained unauthorized access to the victim’s demat account by altering key credentials. He manipulated the associated email ID, linked bank account, and mobile number to execute unauthorized transactions without the customer’s consent or knowledge.
Mandalia had joined Motilal Oswal Financial Services Ltd. in May 2021 and was working in the operations department, specifically handling Quarterly Payment Settlement (QPS) processes — a critical function designed to protect client funds and ensure regulatory compliance.
Criminal Charges Filed Under Bhartiya Nyaya Sanhita, 2023
Following the discovery of the fraud, Gaurang Mandalia has been booked under multiple sections of the newly enacted Bhartiya Nyaya Sanhita, 2023:
•Section 318 (4): Cheating
•Section 336 (3): Forgery
•Section 338: Forgery of valuable security, will, etc.
•Section 340 (2): Using a forged document or electronic record as genuine
Legal experts consulted by Sprouts News Investigation Team (SIT) indicate that the application of these serious criminal provisions signals the gravity of the offense. Under BNS 2023, forgery involving valuable securities can attract stringent imprisonment terms, reflecting the government’s intent to strengthen white-collar crime prosecution.
Regulatory Oversight and Lapses in Internal Controls
The Sprouts News Investigation Team (SIT) analysis suggests that this incident exposes serious weaknesses in brokerage compliance mechanisms, particularly concerning internal employee access to client data. Given that Mandalia was entrusted with critical back-office functions, questions are now being raised on Motilal Oswal’s failure to detect unauthorized changes to sensitive account information.
Typically, any modification to client credentials — including email ID, linked bank accounts, or mobile numbers — requires multi-layered verification, customer confirmation, and audit trails. The alleged bypassing of these safeguards indicates either deliberate collusion or alarming negligence within the organization’s compliance architecture.
Growing Pattern of Internal Brokerage Frauds in India
This case adds to a growing list of internal fraud cases within Indian brokerages that the Sprouts News Investigation Team (SIT) has extensively covered in the past. In several recent incidents across the country, rogue employees have exploited access to trading accounts, KYC data, and internal systems to orchestrate sophisticated financial crimes.
In an increasingly digitized securities market, such frauds not only erode investor confidence but also highlight systemic vulnerabilities in cybersecurity, employee vetting, and regulatory compliance. Industry insiders stress that brokerage firms must now re-evaluate their internal risk controls to safeguard against insider threats.
Also Read: Pune GPS Tracker Scam: ₹15.6 Cr Civic Fraud Uncovered.
Related Article: Motilal Oswal Penalized ₹3 Lakh by SEBI for Regulatory Non-Compliance.
SEBI and Law Enforcement Agencies Likely to Intensify Investigation
Given the magnitude of the crime, sources within regulatory agencies indicate that the Securities and Exchange Board of India (SEBI) is likely to initiate a separate inquiry to evaluate violations of stockbroker regulations, KYC norms, and client protection guidelines. Law enforcement authorities may also invoke provisions under the Information Technology Act, 2000, and the Prevention of Money Laundering Act (PMLA), 2002, depending on the flow of siphoned funds.
If proven guilty, both criminal and regulatory penalties could be imposed, potentially resulting in permanent blacklisting of the accused and heavy penalties on the brokerage firm for supervisory failures.
Investor Protection Under Spotlight
The Sprouts News Investigation Team (SIT) emphasizes that cases like these underline the urgent need for enhanced investor protection frameworks. Regulatory agencies, including SEBI and stock exchanges, may soon be required to strengthen broker audit protocols, increase penalties for supervisory lapses, and enhance real-time fraud detection systems.
As digital trading platforms expand access to millions of retail investors, ensuring the sanctity and security of client funds remains paramount for sustaining long-term market confidence.
