Yes Bank has been fined Rs 25 crore by the Securities and Exchange Board of India (SEBI) for perpetrating "such fraudulent acts on its hapless and unsuspecting customers", in the sale of AT1 bonds.
In a 61-page order by Adjudicating Officer Soma Majumder, the SEBI said Yes Bank, being a company, acted through its employees to "perpetrate such fraudulent acts on its hapless and unsuspecting customers, some of whom were influenced to even alter their investment positions from FDs to these risky AT1 bonds".
The SEBI imposed a Rs 25 crore penalty on account of such misrepresentation and fraud perpetrated on the bank's own customers which were lured and induced to buy these risky AT1 bonds and some of them induced to alter their position from FDs to these AT1 bonds.
The penalty is justified as it is commensurate with the violations and will also have a deterrent effect, the market regulator said.
Three former employees -- Vivek Kanwar, Ashish Nasa and Jasjit Singh Banga -- of Yes Bank who were part of the Private Wealth Management group in the bank were fined Rs 50 lakh to Rs 1 crore.
The SEBI noted that 1,346 Individual Investors had invested approximately Rs 679 crore in the AT1 bonds, out of which 1,311 individual investors were existing customers of Yes Bank, and invested approximately Rs 663 crore in these AT1 Bonds.
As many as 277 customers had existing Fixed Deposits with Yes Bank and they prematurely closed them and reinvested an amount to the extent of Rs 80 crores in these AT1 bonds which were subsequently written down.
The order said the facts and circumstances of the case clearly indicate that in order to make the institutional investors subscribe to more capital of YBL, the Noticees devised the plan to down sell the AT1 bonds, held by the institutional investors, to individual investors including their customers.
In order to do that, the Noticees highlighted the AT1 bonds as earning high interest vis-a-vis the FDs. The omission on the part of the Noticees to forward relevant documentary information to the investors/customers indicates suppression of material facts so as to create a misleading appearance of the AT1 bonds in order to lure the investors/ customers to invest in them.
The misrepresentation perpetrated by Noticees 1 to 4 influenced the investors/customers of YBL and they were lured into purchasing the bonds. Some of the customers also closed the FDs and used the money to buy the AT1 bonds. All these actions amount to fraud perpetrated by the Noticees on the investors, the SEBI said.
The former employees said that they were not decision makers or key management personnel. They also submitted that the whole directions and decision of facilitating sell down of AT1 bonds to retail investors came from Rana Kapoor who was the then MD and CEO and in charge of all activities of YBL including decision making.
"The allegation against the Noticees that they represented the AT-1 bonds as 'Super FD' or 'as safe as FD' AT-1 bonds and that they compared the AT1 bonds with fixed deposits on rate differentials only, but omitted the risk differentials which led the investors to look only at the higher interest rate of these bonds without realizing these bonds have inherent risk associated with these bonds, stands established," the SEBI order said.
Yes Bank, while replying to the show cause notice of the SEBI, said that as a result of the notification of the Scheme, there has been a significant change in the control and shareholding of Noticee 1 since March 2020, and that they cannot now be held liable for the alleged misconduct, if any of the erstwhile Promoter Director /MD and CEO and Directors.
It said that no penalty at all ought to be levied on Noticee 1, inter alia, since the said capital infusion by the State Bank of India and other banks was for saving the bank and its customers and investors and not for payment of penalties.
It said that the facilitation of AT1 Bonds in the secondary market was done at the instance of the erstwhile promoter and the then MD & CEO Kapoor, who is no longer associated with Yes Bank.