This prominent broker was embezzling funds, SEBI cracked down on it and banned it for 7 days!

News Topical, Digital Desk : Market regulator SEBI has completely banned leading stock broker Prabhudas Lilladher from adding any new clients or taking new assignments for a period of seven days from December 15, 2025. In an interim order issued on Friday, SEBI Chief General Manager N Murugan said, "Prabhudas Lilladher is prohibited from engaging as a stock broker from adding any new clients, starting any new contracts or starting any new schemes for a period of seven days from December 15, 2025 (Monday)."

What violations were found?

A joint investigation by SEBI, NSE, BSE, and MCX (from April 1, 2021, to October 31, 2022) revealed several serious compliance lapses, including misuse of client funds. A total of approximately ₹2.70 crore was found missing from client accounts on three separate dates in July 2021. SEBI stated that this was a blatant withdrawal of client funds without any valid reason being provided.

Additionally, funds from inactive clients were not returned on time. According to SEBI, settlements totaling crores of rupees were not made within the stipulated timeframe in 1,283 inactive accounts (quarterly), 677 accounts (monthly), and some active accounts.

Additionally, margins were misreported. Peak margin and end-of-day margins were incorrectly reported for several clients. In one case, peak margin short collections of ₹55.46 lakh were reported. The exchange's fines were passed on to clients and subsequently not refunded.

Securities belonging to fully paid clients were incorrectly parked in the client unpaid securities account. In many cases, brokerage charges were higher than the prescribed limit and the KYC was uploaded to the KYC registration agency (KRA) late.

Company's defense rejected

Prabhudas Lilladher argued that the errors were merely technical or software/clerical errors and that the amount was small compared to the total business. SEBI rejected this argument outright, stating, "Security and safeguarding of client funds is a fundamental regulatory responsibility. This responsibility does not abate simply because the amount is small or a subsequent correction is made."

SEBI acknowledged that the company subsequently made several improvements and issued some refunds, but given the repeated defaults, this temporary suspension was necessary in the best interests of investors. This step was taken as a disciplinary measure and to prevent such mistakes in the future. Prabhudas Lilladher will not be able to add any new clients from December 15 to 21, 2025. Work with existing clients will continue.

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