The Securities and Exchange Board of India (Sebi) has passed its final order in the IIFL and Fidelity front running cases.
The Fidelity front running case was detected sometime between May and August 2019, and the IIFL case was detected when Sebi conducted its preliminary examinations between December 1, 2019 and August 10, 2020. Besides these two, the Axis Mutual Fund front running case was detected sometime in May this year.
Typically, people who deal in securities at asset management companies (AMCs) and other investment companies are scrutinised at all moments, and their calls are recorded, too. But work from home during the lockdown period meant that most of these measures could not be implemented as effectively as work shifted to home.
“This devious practice facilitated the Noticee in executing the front-running trades whilst concealing his identity behind the name-lending account holders, and the name lenders received gratification, directly or indirectly, in some form or the other by being part of the illicit activities by renting their accounts,” the Sebi said in its order.
Last week, Sebi had further stated that those people using a broker’s terminal for trading should do so only from the office or branch office where the terminals are registered with the exchanges, as they can be monitored. Apart from this, every other person who handles critical functions that deal with the markets, such as investments, dealing, operations, compliance, risk management, also need to work from the office.
The IIFL and Fidelity Investments Front Running Case Order
The show cause notice in the order by Sebi read: “The trading pattern of Ms. Alka Dhadda and Ms. Arushi Dhadda suggested that they managed their trading to take advantage of the impending trading activity of Fidelity Group entities by front running them, and thereby generated profits for themselves from the price movement of scrips on account of the large buy/sell orders of Fidelity Group entities.”
A total of 11 people and their relatives were found guilty of front running at Fidelity. They have been identified as Vaibhav Dhadda, Alka Dhadda, Arushi Dhadda, Pramod Jain, Beena Jain, Aditya Barla, Sumit Kanungo, Prashant Jain, Pranay Vaid, Siddharth Jain, and Riya Kanungo.
Collectively, they all made gains to the tune of Rs 3,55,32,106.10, and Sebi has seized Rs 1,86,04,343 from them till now.
Punishment: The punishment has been divided into three parts.
Sebi has said that every amount of money that these people made in the front running activity will have to be given back.
These individual and their accomplice relatives would be refrained from accessing the securities market and prohibited from buying, selling or otherwise dealing in securities for two years.
Penalty under Section 11 (4A) and Section 11B (2) of the Sebi Act, 1992 read with Section 15 HA of the Sebi Act, 1992 would also be applied against them.
Santosh Brijraj Singh was the head dealer of IIFL, and he dealt with IIFL Asset Management, IIFL Select Series II, IIFL Multi-Strategy Fund, IIFL Long Term Growth Fund I, IIFL Focused Equity Strategies Fund - Capmetrics Investment Adviser, and IIFL Special Opportunities Fund Series 5 funds. He provided information to his friend Adil, and then they used mule trading accounts to execute the trades.
In the IIFL front running case, it was found that trading accounts operated by Santosh Brijraj Singh (head dealer), and Adil Gulam Suthar profited to the tune of Rs 59,28,153 in a total of 385 instances.
Sebi had in its last interim order last year asked Singh and Suthar to deposit Rs 30.18 lakh and Rs 27.8 lakh, respectively.
Punishment: The punishment for IIFL has been divided into five parts.
The mule trading accounts used by Singh and Suthar were in the name of Virendra Pratap Singh, Neha Virendra Singh, Gulammohammed Gulamabbas Shaikh and Mohammedidrish A Shaikh. They have now been barred from the markets for a period of two years.
They are also barred from holding the post of director, or any managerial position, or from associating themselves in any capacity with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with Sebi, for a period of two years.
Santosh Brijraj Singh and his friend Adil Gulam Suthar have been barred from accessing the market for five years. They will also have to deposit all the ill-gotten gains of the front running scheme in a specified escrow account.
They are also barred from holding the post of director, any managerial position, or from associating themselves in any capacity with any listed public company and any public company which intends to raise money from the public, or any intermediary registered with Sebi, for a period of five years.
Apart from these, Singh will pay Rs 10 lakh, and Suthar will pay Rs 8 lakh within 45 days as penalty under Section 15HA of the Sebi Act, 1992.
The penalties will have to be paid only by way of demand draft in favour of “Sebi-Penalties Remittable to Government of India”, payable at Mumbai, or through online payment facility available on the Sebi website at www.sebi.gov.in