SEBI impounds Rs 4.8 cr profit made allegedly from front-running trades of big client

In the order, SEBI's WTM said that filing a settlement application does not stop the regulator from issuing directions to protect the interest of investors and to maintain the integrity of the securities market.

The market regulator has impounded more than Rs 4.8 crore of unlawful gains from alleged front-running activities, in an interim cum showcause notice.

In the order issued on January 27, the Securities and Exchange Board of India (SEBI) restrained dealer of a brokerage, three authorised persons (APs) of another brokerage, and four more associates who allegedly were involved in this front-running racket from the securities market.

In the order, SEBI's Whole-time Member Amarjeet Singh said, "In the interest of justice, I am of the view that the unlawful gains generated by the Noticees need to be impounded on an immediate basis so that such funds are not disposed of by the Noticees."

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The modus operandi of this operation involved the dealer of a brokerage Nirav Mahendra Sapani passing on material non-public information (MNPI) regarding the trades of a big client on to other people, who then front-ran the trades and shared the profit with Sapani.

Among the front runners were Ashish Kirti Kothari, Amit Kirti Kothari and Neha Ashish Kothari who were APs of another brokerage.

Settlement application

During the investigation, Nirav Sapani submitted to the regulator that he has filed a suo motu settlement application in the matter of investigation initiated by SEBI into the frontrunning of trades of the big client.

In the order, Singh note that this does not prohibit the regulator from initiating any proceedings towards issuing interim civil and administrative directions.

Singh wrote, " In this regard, I find it relevant to refer to the proviso of regulation 8(2) of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018, which provides that the filing of a settlement application shall not prohibit the initiation of any proceedings, in so far as may be deemed necessary for the purpose of issuance of interim civil and administrative directions to protect the interests of investors and to maintain the integrity of the securities markets."