Sebi slaps Rs 45 lakh fine on 2 individuals for fraudulent trading activities

Markets regulator Sebi has slapped a total fine of Rs 45 lakh on two individuals for indulging in manipulative activities and cornering the shares reserved for retail investors in IPO of various companies. Sebi levied a penalty of Rs 25 lakh on Bhargav R Panchal and Rs 20 lakh on Hina B Panchal and noted that the activities of the individuals "adversely affected market integrity."

The order follows an investigation carried out by Sebi into the affairs relating to buying, selling and dealings in the shares of certain companies during their initial public offerings (IPO) between 2003 and 2005. The probe prima facie revealed that certain entities had opened a large number of Demat accounts and bank accounts in the names of non-existent persons, with each application being of such a value so as to make it eligible for allotment under the retail category.

Sebi noted that the individuals had aided and abetted a group of individuals that were involved as key operators in the scheme of cornering shares in the IPO of certain firms, including IL&FS Ltd, Jet Airways, Yes Bank and Tata Consultancy Services, and made illegal gains from the same. An approximate profit of Rs 9 lakh was made by Bhargav R Panchal and Rs 6.6 lakh by Hina B Panchal.

"This ill-gotten gains of the notices is naturally a loss to other retail investors," Sebi noted in an order dated October 22. It further said, "the notices have indulged into fraudulent and manipulative activities and employed deceptive device and scheme to corner the shares reserved for the retail individual investors in the... IPOs with the intention to defraud retail individual investors."

The individuals have violated provisions of the Prohibition of Fraudulent and Unfair Trade Practices, it added. In three separate orders issued on Wednesday, the regulator imposed a fine of Rs 5 lakh each on Shree Ganesh Traders, Sidheshwari Commotrade Pvt Ltd and Sharma Hire Purchase Ltd for indulging in fraudulent trading in the illiquid stock options segment on the BSE.

The firms were among several entities that executed reversal trades in stock options with the same entity on the same day, thereby creating artificial volume, leading to false and misleading appearance of trading in the illiquid stock options at BSE. Reversal trades are those trades in which an entity reverses its buy or sell positions in a contract with subsequent sell or buy position with the same counterparty during the same day.

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