(PTI) Regulator Sebi on Monday barred 14 entities from the securities market for four years and imposed a penalty totalling ₹70 lakh on them in a case pertaining to front-running by some former dealers of Reliance Securities Ltd and their connected entities.
They have been directed to pay the fine within 45 days, the Securities and Exchange Board of India (Sebi) said in its order.
In addition, they have been asked to disgorge ₹4.23 crore of unlawful gains made by them, along with an interest of 12 per cent.
In its order, Sebi found that entities with the help and cooperation of each other/ by being in nexus with each other, in a pre-determined manner were successful in front-running the impending orders of Tata Absolute Return Fund, a scheme of Tata AIF (Big Client). Tata AIF is a Sebi-registered alternative investment fund.
Pursuant to the nexus, they have front-run the orders of the Big Client on multiple occasions during the investigation period and have made considerable wrongful gains.
"The scheme of events also amply explains the strategy adopted in the extant matter wherein the Noticees who were directly connected with the non-public information of the Big Client namely, Harshal Vira and Bhavesh Gandhi by virtue of their employment with Reliance Securities Ltd, have used their family and friends' trading accounts to execute the front-running trades, which was done not only to hide their identity/ identity of the ultimate beneficiaries but also to escape regulatory detection," Sebi said in its 136-page order.
Moreover, the non-public information of the Big Client which was communicated by Vira and Bhavesh Gandhi to their friends' or family members was further communicated by them to their connected entities who also took advantage of the such non-public information about the impending trade orders of the Big Client and had executed the front-running trades, it added.
By indulging in such trades, the entities have violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.
Accordingly, the regulator has prohibited the 14 entities, including individuals from the securities market for a period of four years. It clarified that while calculating the period of debarment, the period already undergone by the entities in pursuance of the interim order would be taken into consideration.
Further, the regulator levied a fine of ₹5 lakh each on the 14 entities.
The order came after the regulator's internal surveillance system had generated front-running alerts against one particular individual, Meena Ramnilal Vira, in December 2019 and January 2020 who was suspected to be front-running the trades of Tata Absolute Return Fund, a scheme of Tata AIF (Big Client).
Following the preliminary examination, an interim order was passed in the matter in August 2020, restraining those suspected entities, who are also the noticees in the present proceedings, from accessing the securities market till further directions. Also, they were directed to deposit unlawfully gains to the tune of ₹4.49 crore made by them by carrying out such prima facie front-running trades. Subsequently, a confirmatory order was passed in June 2021 in the matter.
After the interim order, Reliance Securities had terminated the services of three traders named by markets regulator Sebi in a front-running case.
Front-running refers to an illegal practice in the stock market where an entity trades on the basis of advance information from a broker or analyst before the information has been made to their clients.