On May 26, 2026, SEBI issued a landmark order against First Global Finance Private Limited (FGF), a SEBI-registered Portfolio Manager, its Managing Director and its Principal Officer. The order imposed monetary penalties, a 21-day client-onboarding ban, and sweeping directions to cease and desist — all arising from an on-site inspection that began in December 2022.
While the order pertains to a specific PMS entity, its significance extends much further. It provides valuable insight into how SEBI evaluates outsourcing arrangements, performance reporting practices, marketing communications, and management accountability within regulated intermediaries. These are mistakes that are easy to drift into, especially when the entities grow fast, rely on technology vendors, or feel competitive pressure to trumpet their performance.
What makes this detailed order particularly instructive is how SEBI dissected the operational arrangement and refused to accept form over substance. Whether you are an Investment Adviser (IA), Research Analyst (RA), Portfolio Manager (PMS) or Stock Broker, the principles laid down in this order apply directly to your practice.
Let’s examine what happened and what intermediaries should take away from it.
#1: Outsourcing Core Investment Decisions to a Third Party
What did the PMS do
FGF had engaged Algo One AI Private Limited as a technology provider. However, during inspection, SEBI observed that the involvement of Algo One went beyond technology support.
According to the order:
- A representative of Algo One was inducted as a member of the Investment Committee.
- Client-specific basket files containing security selection, quantities, and execution instructions were generated through Algo One’s systems.
- PMS personnel relied extensively on these recommendations while executing transactions.
- The commercial arrangement included sharing of 20% of management fees and 45% of performance fees with Algo One.
Why SEBI Considered It a Violation
SEBI concluded that the arrangement with a service provider termed as a “technology consultant” effectively resulted in outsourcing of core portfolio management and investment-related functions to a third party.
The regulator emphasized that a PMS cannot outsource activities that require the exercise of investment judgment and discretion.
Why This Matters for Intermediaries
SEBI regulations emphasize that the intermediaries may outsource certain activities but cannot outsource their core business activities and compliance functions and investment related activities.
Many intermediaries today rely on research providers, model portfolio providers, technology vendors. Intermediaries should review their decision-making workflows and ensure that core activities remain under the control of entity and the authorised personnel.
#2: Exaggerated and Misleading Marketing Claims
What did the PMS do
FGF’s website, presentations, and marketing material contained statements such as:
- “No.1 PMS provider in the multi-cap space.”
- Returns significantly better than competitors.
- Claims regarding sophisticated AI and machine learning capabilities.
SEBI observed that many of these claims were based on selective comparisons and were not adequately substantiated.
Why SEBI Considered It a Violation
SEBI held that investor communications must be fair, balanced, and capable of verification.
The regulator took the view that:
- Selective peer comparisons cannot support broad “No.1” claims.
- Technology claims must be supported by objective evidence.
- Unsupported superlative statements create misleading impressions for investors.
Why This Matters for Intermediaries
This finding has implications across the financial services industry. Today, websites, social media posts, investor presentations, and pitch decks are often prepared by marketing teams or external agencies. However, regulatory responsibility continues to rest with the intermediary.
An important question to ask is: Can every performance or technology-related claim be independently substantiated if SEBI asks for supporting evidence tomorrow?
#3: Inconsistent Performance Reporting Methodology
What did the PMS do
FGF reported performance using TWRR (Time-Weighted Rate of Return) in regulatory filings and disclosure documents, as required by the regulations. But client-facing performance reports, fact sheets, and presentations used CAGR and total-return figures. FGF argued CAGR was just an “additional metric.” SEBI rejected this, holding that uniformity means the same methodology across all channels.
Why SEBI Considered It a Violation
SEBI held that performance reporting should remain consistent across regulatory filings and investor-facing communications.
Just adding specific disclaimers does not cure methodological inconsistency.
Why This Matters for Intermediaries
This principle extends beyond PMS entities. Investment Advisers, Research Analysts, AIF Managers and Mutual Fund distributors frequently use performance illustrations in client communications. This order highlights the importance of ensuring that all disclosures speak the same language.
Compliance teams should periodically review whether the performance figures used in presentations, Disclosure Documents, websites, factsheets and marketing materials are consistent with regulatory disclosures and do not inadvertently create a more favourable impression than warranted.
Here is a summary of the key findings of SEBI:
Conclusion
The First Global Finance order is not simply an enforcement action against one firm. It is a detailed articulation of what SEBI expects from every registered intermediary in core foundational areas.
Throughout the order, SEBI looked beyond contractual descriptions, disclaimers, committee structures, and marketing narratives to examine how the business actually operated in practice.
Also, SEBI did not restrict its action to the company alone. The Managing Director and Principal Officer were also held responsible because they were involved in approving the relevant arrangements, communications, and operational processes.
For PMS firms, the order raises several important questions:
- Who is genuinely making investment decisions?
- Are performance disclosures consistent across all channels?
- Can marketing claims be independently substantiated?
- Do governance structures reflect actual accountability?
The most important takeaway may be that compliance is no longer confined to regulatory filings. It now extends into technology arrangements, investment processes, marketing communications, and board-level oversight.
The cost of non-compliance is not merely monetary. It is reputational, operational, and sometimes, suspension of license.
If SEBI were to inspect your organisation today, would your actual operations align with the narrative reflected in your agreements, disclosures, committee structures, marketing material, and regulatory filings?