Sebi cancels registration of stock broker

Capital market regulator Sebi on Wednesday cancelled the registration of a stock broker for indulging in fraudulent trading activities in the scrip of Maharashtra Polybutenes Ltd. In its order, Securities and Exchange Board of India (Sebi) said it was cancelling the certificate of registration granted to the noticee namely Vishal Vijay Shah as a stock broker. It was alleged that Shah had entered into circular and synchronised trades with 115 front entities in the scrip of Maharashtra Polybutenes which led to the creation of false or misleading appearance of trading in an otherwise illiquid scrip.

Capital market regulator Sebi on Wednesday cancelled the registration of a stock broker for indulging in fraudulent trading activities in the scrip of Maharashtra Polybutenes Ltd. In its order, Securities and Exchange Board of India (Sebi) said it was cancelling the certificate of registration granted to the noticee namely Vishal Vijay Shah as a stock broker.

It was alleged that Shah had entered into circular and synchronised trades with 115 front entities in the scrip of Maharashtra Polybutenes which led to the creation of false or misleading appearance of trading in an otherwise illiquid scrip. In June 2015, the watchdog appointed a Designated Authority (DA) to enquire into the violations alleged against the noticee and the enquiry report, dated May 31, 2017, was submitted to the Designated Member.

It was found there were three instances of first level circular trades started from the shares provided by the promoter of Maharashtra Polybutenes to Shah. Also, the trade cycles were continued by him and in total, Shah had transferred shares to 115 front entities and bought from the same entities thereby creating an artificial volume of 24 lakh shares by way of circular trades, Sebi said.

These entities sold the shares received from Shah in the securities market and Shah had repeatedly traded with the same set of entities in a circular and synchronised manner, it added. According to the regulator, Shah had dealt in the scrip of the company along with other connected entities in a fraudulent manner by entering into transactions that were not genuine, resulting in a misleading appearance of trading and artificial price manipulation.

Further, it observed that Shah had given incorrect instructions to clearing house in a large number of buy transactions for direct payout to 92 front entities, who did not trade on the respective trade dates, for 16 lakh shares, which was highly irregular. The regulator said that there was no satisfactory explanation from Shah for third party transfers of shares to entities or third parties other than clients, considering that the same quantity of shares were received back after honouring payout obligation of others.

In September 2015, Sebi had imposed a monetary penalty of Rs 15 lakh on the noticee for failure to comply with the summons issued by the investigating authority. As regards the plea for leniency in lieu of that order, Sebi Whole Time Member G Mahalingam in Wednesday's order said the violations committed by the noticee are of a serious nature and do not warrant any leniency. " I am therefore, not inclined to accept the noticee’s plea," he said.

Noting that it was the responsibility of the stock broker to ensure that shares are transferred to relevant clients and not third parties, Sebi said conduct of Shah as a stock broker in this case clearly exhibited a complete lack of skill, care and diligence..