Sebi bans 3 individuals for 6 months in front running case

NEW DELHI: Sebi on Monday barred three individuals from the capital markets for six months for front running the trades of Reliance Capital Mutual Fund (RCMF).

The three individuals are -- Anita Shyam Mhatre, who had a trading account with Anugrah Stock and Broking; Sanjay Parekh, who was a dealer of Anugrah; and Rakesh Shah, who was a dealer with Reliance Capital Asset Management Company.

Also, the regulator has directed Mhatre to disgore unlawful gains of Rs 8.87 lakh, along with simple interest at the rate of 4 per cent calculated from November 30, 2008.

Front-running refers to an illegal practice in stock market where an entity trades on the basis of advance information from a broker or analyst before the information has been made available to their clients.

The order follows a probe by the Securities and Exchange Board of India (Sebi) into the trading activity of Mhatre during the period of October 2008 to November 2008.

Sebi, in its investigation, found that Shah, while working with RCMF as a dealer and having knowledge of the impending large trades to be executed on behalf of the fund house, passed on information pertaining to the trades to Parekh.

Parekh utilised such information and helped in executing those front running trades in the trading account of Mhatre.

These front running trades eventually enriched Mhatre unlawfully by Rs 8.87 lakh, it added.

Reliance Capital Asset Management Company Ltd (RCAML) is the asset management firm of RCMF.

"It is also obvious to conclude that had the information about the impending orders of the mutual fund (RCMF) not been shared by the noticee no. 3 (Shah) with Noticee no 2(Parekh), Noticee no.1(Mhatre) would not have been able to front run the trades of RCMF involving such huge amounts of trades in the respective scrips, which was also not commensurate to her annual earnings," Sebi said in its 35-page order.

By indulging in such an artificial device and scheme of front-running, the three individuals have clearly indulged in fraudulent and unfair trade practices and violated PFUTP (Prohibition of fraudulent and unfair trade practices) norms, the regulator added.

Accordingly, Sebi prohibited these individuals from accessing the securities market and "further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of six months."

RCAML, through a letter in July 2009, informed Sebi that Shah acknowledged before its head - compliance that he had inadvertently passed on certain information pertaining to a few trades of RCMF to one of his friends and as per his belief, such information had been used for trades executed in the name of Mhatre.

In a separate order, Sebi has prohibited Sanjay Jalan, who was the promoter of Waterina Resorts and Hotels, his wife Rinku Jalan and mother Anila Jalan from the capital markets for six months for indulging in manipulative and fraudulent trading in the company's shares.

It has been alleged that the Jalans in connivance with each other had transferred huge quantities of shares of Le Waterina under a scheme or artifice to various suspected entities for creation of artificial volumes in the company's scrip and thereby causing a misleading appearance of trading in the scrip, as per the order.

By indulging in such trades, they violated the provision of PFUTP norms.

The regulator had conducted an investigation in the scrip of Le Waterina for the period of October 2010 to March 2012 for possible violations of Sebi rules.