SEBI penalises 13 entities for front-running trades using non-public information

SEBI penalises 13 entities for front-running trades using non-public information

The Securities and Exchange Board of India (SEBI) has penalised 13 individuals and entities for engaging in fraudulent front-running trades based on non-public information. The regulator imposed monetary penalties ranging from Rs 5 lakh to Rs 15 lakh and also restrained them from accessing the securities market for 1to 3 years.

SEBI’s investigation found that these entities had traded in common scrips with a “Big Client” which were family trusts ahead of its large orders, thereby gaining unfair profits. The regulator noted a sharp surge in their intra-day and square-off profits during the investigation period, which dropped significantly once SEBI initiated queries with the Big Client on June 29, 2022.

The market regulator said the trading pattern showed clear connectedness and behavioural consistency among them. Many noticees admitted that their accounts were either used by the key conspirator or that they had traded on his advice, with several allowing trades through their spouses’ or HUF accounts.

SEBI’s quasi-judicial authority Santosh Shukla, in his 82-page order, noted, “The entire gamut of events commencing from the typical gambit of opening of trading accounts within close proximity of trading, indulging in frequent calls, visiting place of information carrier, allowing the information carrier to use the trading accounts or self-indulgence in unrealistic trading behaviour show a classic example of non-genuine treading to earn illegal gains or at least lending trading account to make illegal profits based on fraudulent trading”.

SEBI described the case as “a classic example of non-genuine trading motivated by greed for easy profit,” adding that the entities’ conduct violated the principles of fair play in the securities market. It observed that the entire episode distorted normal market forces and undermined market integrity.

Under the order, the restrained noticees are allowed to square off any open derivative positions within three months. However, they are barred from selling assets or securities, except to pay the penalties imposed.

Shukla further stated in his order, “The case is also a classic example of the touch-me-not distancing through husband using spouse’s account or HUF’s account and culminating in the final denouement wherein connected parties with all their manipulative assemblage came to the fore setting a seal on their machinations of fraudulent, manipulative and deceptive dealings for the benefit of those traders who traded or caused to be traded in the scrips based on the non-public information regarding impending orders of the Big Client”.

The highest penalty of Rs 15 lakh was imposed on Chaitali Shah, followed by Rs 12 lakh each on Shah Swapnil Uday HUF and Piyush Mehta HUF, and Rs 10 lakh each on Shankar Tukaram Vadatkar, Dipesh Mehta HUF, and Hansraj Randhir Shah HUF. Others, including Sakshi Vadatkar, Randhir Virji Shah HUF, Pinakin Hansraj Shah HUF, Punaiben Hansraj Shah, Raahul Hansraj Shah HUF, Ankesh Mahendra Jain HUF, and Dr. Kumaraswami R Dussa HUF, were fined between Rs 5 lakh and Rs 8 lakh.

SEBI order says, the whole picture on the canvass suggests tell- tale strands of how each one of the connected entities at various sequences in the chain has catalysed the misuse of non- public information for their own benefit in a web of make-believe trickery to mislead and obfuscate, to the final confluence of making wrongful gains from fraudulent trading.  SEBI order stressed that unequal access to information induces inequitable results and erodes market fairness.