Front running case: Sebi bans two individuals from markets for 3 years; asks to disgorge Rs 1.67 cr

The chief dealers' access to and/ or awareness of large impending orders of the institutional clients constituted the basis for such trades which were observed to have been been largely placed from the premises of his workplace.

The order came after the Securities and Exchange Board of India's (Sebi) surveillance mechanism generated front running alerts during the months of November 2020, December 2020 and January 2021 against Savla. Thereafter, the regulator conducted an investigation into the trading activity of Savla for the period from January 2019 to July 2022 to ascertain violations of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules.

In its probe, Sebi found that Savla was trading through stock brokers, Sushil Financial Services and Motilal Oswal Financial Services. It was observed that she was front running the trades of LIC, LIC Pension Fund Ltd, Unit Trust of India Mutual Fund, IDBI Trusteeship Services Ltd, Catalyst Trusteeship Ltd and General Insurance Corporation of India (collectively called Big Clients).

The trades of the Big Clients, which were being front run by Savla were all executed by the stock broker, IDBI Capital & Securities Markets.

"Dedhia was the main perpetrator behind the front running activities of Savla. Further, Savla allowed her trading account to be used by her brother for such fraudulent activities and was also a party to such activities.

Therefore, the activities of the Noticees were in violation of the relevant provisions of SEBI Act and PFUTP Regulations," the regulator said in its 63-page order.

"The noticees (brother-sister duo) have mistultilised the confidential information of the Big Clients and had the noticees not been in possession of the said confidential non-public information of the Big Clients, the trades in the account of noticee No. 2 (Salva) would not have been executed," the regulator noted.

The two individuals have executed front-running trades in cash and F&O segments of the market during the investigation period and in the process have made substantial wrongful gains of of Rs 1.67 crore, it added.

Accordingly, Sebi has restrained Dedhia and Savla from "accessing the securities market and are further prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner whatsoever manner, for a period of three years".

Also, they have been directed to "disgorge, jointly and severally, the amount of wrongful gains to the tune of Rs 1.67 crore along with interest at the rate of 12% per annum".