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7/31/2019 Brushman Sebi Order
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BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. VSS/AO- 75/2009]
__________________________________________________
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF
INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR
HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING
OFFICER) RULES, 1995
In respect of
Sunil Giridharilal Raheja
(PAN.AAEPR4712N)
FACTS OF THE CASE IN BRIEF
1. Securities and Exchange Board of India (hereinafter referred to asSEBI) conducted investigation into the trading done by Mr. Sunil
Giridharilal Raheja, Mrs. Simran Raheja and Mr. Swaminathan
Subramani (hereinafter collectively referred to as Group) from
January 1, 2008 to May 5, 2008 (hereinafter referred to as
Investigation Period) in the following scrips:
a) Visesh Infotecnics Ltd.
b) Sanra Software Ltd.
c) Jumbo Bag Ltd.
d) Cerebra Integrated Technologies Ltd.
e) Brushman India Ltd.
f) Tricom India Ltd.
g) Glory poly Films Ltd.
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h) Rainbow Foundations Ltd.
i) GV Films Ltd.
j) Yogi Sung-Won India Ltd.
k) Kaashyap Radiant Systems Ltd.
l) International Hometex Ltd.
2. It was alleged that Mr. Sunil Giridharilal Raheja (hereinafter referred
to as Noticee) along with Mrs. Simran Raheja and Mr.
Swaminathan Subramani had indulged in self/synchronized trading
which led to creation of artificial volumes in the aforesaid scrips and
was designed to create a false market leading to significant price
movement in the aforesaid scrips and, hence, violated the provisions
of regulations 4 (2) (a), (b) and (g) of SEBI (Prohibition of Fraudulent
and Unfair Trade Practices Relating to Securities Markets)
Regulations, 2003 (hereinafter referred to as PFUTP).
3. The aforesaid alleged violations, if established, make the Noticee
liable for monetary penalty under section 15HA of Securities and
Exchange Board of India Act, 1992 (hereinafter referred to as SEBI
Act).
APPOINTMENT OF ADJUDICATING OFFICER
4. The undersigned was appointed as Adjudicating Officer vide order
dated November 24, 2008 under section 15 I of SEBI Act read with
rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties
by Adjudicating Officer) Rules, 1995 (hereinafter referred to as
Rules) to inquire into and adjudge the alleged violations of
provisions of PFUTP.
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SHOW CAUSE NOTICE, HEARING AND REPLY
5. Show Cause Notice No. EAD-5/VSS/RS/152410/2009 dated January
30, 2009 (hereinafter referred to as SCN) was issued to the
Noticee under rule 4(1) of the Rules to show cause as to why an
inquiry should not be held against the Noticee and penalty be not
imposed on the Noticee under section 15HA of SEBI Act for the
alleged violation specified in the said SCN.
6. The Noticee vide letter dated February 09, 2009 replied to the SCN
stating, inter alia, the following :
I am having Trading accounts with the brokers as mentioned in your aboveletter.
With regard to the Trading System I was doing such type of Transactions withthe only SOLE purpose of maintaining the Credit/Debit balances with the
respective Brokers with whom I am having accounts. To ensure that I receive
the shares at the same rates I used to put the sale and buy orders
simultaneously at the same rate and same time to the respective brokers with
whom I had to maintain the Credit balance. Sir, I declare your good selves there is not intention to manipulate the price by
creating an artificial market. Even though Mrs. Simran is wife of myselves she has got her own individuality
and own decisions,participates in Stock Market on her own and we both not to
be considered as group at all. Also wife using her husband's phone iscommon.
This had happened only due to Ignorance and not knowing the facts that yourgood self will object the same. I sincerely apologize the same and humbly
plead your good selves to excuse and bear with me for the same.
7. In the interest of natural justice and in order to conduct an inquiry as
per rule 4 (3) of the Rules, the Noticee was granted an opportunity of
personal hearing on April 13, 2009 at SEBI, Southern Regional
Office, Chennai vide notice dated March 2, 2009.Mr. N. Rajkumar,Authorized Representative, appeared on behalf of the Noticee
(hereinafter referred to as AR). During the hearing, the AR
reiterated the submissions made vide letter dated February 09, 2009.
The Noticee vide letter dated April 13, 2009 made further
submissions stating, inter-alia, the following:
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A synchronized trade is a transaction wherein the buy and sell orderquantities are identical, and are put through at exactly the same time on
the trading platform. One of the guiding principles in proving
synchronized trading, as per the SEBI Regulations, is the exactness of
the price and quantity of the 'buy' and 'sell' orders and the closeness in
time at which they are placed.
The Securities Appellate Tribunal had clarified that synchronizedtrading is per se not illegal unless the intent to manipulate the price by
creating an artificial market is proven.
For the market manipulation stated in Regulation 4 (of FUTPRegulations) if one is to be charged it is absolutely necessary to prove
that the person had acted intentionally," SAT had said in the Nirmal
Bang case.
In the Videocon case, the Tribunal examined the extent of evidencerequired to establish the charge of market manipulation and observed:
"... in the absence of reasonably good evidence to support, charge of
market manipulation, which is a very serious one, cannot stick on the
Appellant company, merely on surmises and conjectures."
I wish to state that none of the transactions done by me falls neither inSynchronized trading nor Circular trading, as it has failed to fulfil the
entire criteria as defined by the applicable Acts in force from time to
time.
Trading Mantra: High Volume Low Margin is the concept of mytrading. I do trade regularly for my living. Whatever trade done, I hadno intention of misleading the market and I have a Depository
Partcipant Account for receiving delivery in demat form from my
broker thereby establishing that I have no intention of denying the
transfer of beneficial ownership. There is no rule which states that the
market price of a share should be so many times of its earnings. The
prices are subject to market demand and supply. Trading a mere 10%
of the shares does not mean that I have the intention to operate only as
a device to inflate, depress or cause fluctuations in the price of such
security for wrongful gain or avoidance of loss.
The trading system is as such that the trades will result in delivery inT+2 days for delivery based and netting basis for intra day trading. As
a trader when the share price comes down when I purchased at a high
price, any trader/investor for that matter will try to average it or exit
from that particular share. Mere "netting" does not result in violation 4
(2)@)(g) of PFUTP Regulations.
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However, I agree that the transactions have been done only due to thefact that that I was not in a position to honour my payments in time and
availed the extra time limit granted by the broker, as I was facing
severe financial crunch.
For all companies which appear in your letter, the said shares tradedby me does not exceed even half a percent of its paid up capital or
outstanding capital of the company.
The price of the said shares have not been substantially increased ordecreased.
CONSIDERATION OF ISSUES AND FINDINGS
8. The issues that arise for consideration in the present case are :
a) Whether the Noticee had violated regulations 4 (2) (a), (b)
and (g) of PFUTP?
b) Does the violation, if any, on the part of the Noticee attract
monetary penalty under section 15 HA of SEBI Act?
c) If so, what would be the monetary penalty that can be
imposed taking into consideration the factors mentioned in
section 15J of SEBI Act?
9. Before moving forward, it will be appropriate to refer to the relevant
provisions of PFUTP, which reads as under:
4. Prohibition of manipulative, fraudulent and unfair trade practices
(2) Dealing in securities shall be deemed to be a fraudulent or an unfair
trade practice if it involves fraud and may include all or any of the
following, namely: -
(a) indulging in an act which creates false or misleading
appearance of trading in the securities market;
(b)dealing in a security not intended to effect transfer of
beneficial ownership but intended to operate only as a device
to inflate, depress or cause fluctuations in the price of such
security for wrongful gain or avoidance of loss;
(c) .
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(d).
(e) .
(f) .
(g)entering into a transaction in securities without intention of
performing it or without intention of change of ownership of
such security.
10. Upon careful perusal of the documents available on record including
the basis of allegations made, submissions of the Noticee, etc., I find
the following:
a) Mrs. Simran Raheja is the wife of the Noticee, which has been
admitted by the Noticee. Mr. Swaminathan Subramani shared
a common contact mobile number, viz. 9884482935 with the
Noticee. The Noticee, during the hearing, submitted that he
does not know Mr. Swaminathan Subramani. He also
submitted that he, his wife and Mr. Subramani were
introduced by one Mr. Amit who, by mistake, had written the
same contact number for all of them in the KYC forms and
hence, they should not be considered as a group. However,
the material available on record reveals that Mr. Swaminathan
Subramani and the Noticee were introduced by the same
person, both of them dealt in the same scrips with the same
set of brokers during the same period and, above all, in the
same pattern. All these cannot be said to be mere
coincidence. The claim of the Noticee that he does not know
Mr. Swaminathan Subramani does not appear to be true.
Hence, the contention of the Noticee in this regard is devoid of
merit.
b) The examination of the trade-order log, details of which were
provided to the Noticee as Annexure to the SCN, reveals that
the Group had indulged in self trades in all 12 scrips through
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different/same brokers creating artificial volumes to the extent
of 43,57,157 shares. The summary of the trades executed by
the Group is given below:
ScripName
Self Trade(Volume)
VolumeTraded bythe Group
TotalVolume inthe Scrip
Self Tradeas a % oftotalvolume
Self Tradeas a % ofTradingdone by theGroup
ViseshInfotecnicsLtd
1,285,919 4,465,928 14,820,246 8.68% 28.79%
SanraSoftwareLtd
189,032 793,366 1,748,837 10.81% 23.83%
Jumbo Bag
Ltd
33676 152822 9,385,783 0.36% 22.04%
CerebraIntegratedTechnologies Ltd
328,122 2,097,574 3,043,853 10.78% 15.64%
BrushmanIndia Ltd.
4000 30792 3,885,780 0.10% 12.99%
TricomIndia Ltd
314,654 3,405,987 7,047,927 4.46% 9.24%
Glory polyFilms Ltd.
214,580 2,503,938 8,846,033 2.43% 8.57%
RainbowFoundations Ltd
25,026 365,913 797,612 3.14% 6.84%
GV FilmsLtd
1,887,620 33,991,639 306,776,071 0.62% 5.55%
Yogi Sung-Won IndiaLtd
4500 234573 919,272 0.49% 1.92%
KaashyapRadiantSystemsLtd
69822 26668441 333,350,848 0.02% 0.26%
International HometexLtd
206 603628 4,510,517 0.00% 0.03%
Total 4,357,157 75,314,601 695,132,779 0.63% 5.79%
c) The Group had created substantial artificial volumes in these
scrips by indulging into self trades/synchronized trades.
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d) For instance, in 5 scrips, viz. Visesh Infotecnics Ltd., Sanra
Software Ltd., Jumbo Bag Ltd., Cerebra Integrated Technologies
Ltd. And Brushman India Ltd., the percentage of self trades was
more than 10% of the volume traded by the group as seen from
the aforesaid table. Similarly, in respect of 4 scrips, viz., Tricom
India Ltd., Glory Poly Films Ltd., Rainbow Foundations Ltd. and
GV Films Ltd., the percentage of self trades was between 5 and
10%. In respect of 1 scrip, viz., Yogi Sunwon India Ltd., the
percentage was more than 1% and in respect of 2 scrips, viz.,
Kaashyap Radiant Systems Ltd. and International Hometex Ltd.
the percentage was less than 1.
e) The Noticee had traded in all the 12 scrips during the
investigation period.
f) In several instances, the Noticee himself was the buyer as well as
the seller in all the 12 scrips. In other words, the Noticee was
present on both the legs of the transactions. This pattern of
trading is known as self trading.
g) The Noticee had indulged in such self trades through 12 brokers
and created an aggregate volume of 42,16,542 shares in all the
12 scrips. The details of the self trades done by the Noticee are
given below:
Scrip Name Wash
Volume
Volume
traded byEntiy in the
Scrip
Total
Volume inthe Scrip
% of
WashTrades to
Total
Volume
in the
Scrip
% of
WashTrades to
Volume
traded by
the Entity
in the
Scrip
Visesh
Infotecnics Ltd
1,246,788 3,404,145 14,820,246 8.41 36.63
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Sanra Software
Ltd
148,294 556,423 1,748,837 8.48 26.65
Jumbo Bag Ltd 33,676 152,822 9,385,783 0.36 22.04
Cerebra
Integrated
Technologies
Ltd
319,072 1,521,704 3,043,853 10.48 20.97
Brushman India
Ltd.
4,000 30,792 3,885,780 0.1 12.99
Tricom India Ltd 298,839 2,610,779 7,047,927 4.24 11.45
Glory poly Films
Ltd.
186,299 1,836,855 8,846,033 2.11 10.14
Rainbow
Foundations Ltd
24,026 272,707 797,612 3.01 8.81
GV Films Ltd 1,881,020 25,793,931 306,776,071 0.61 7.29
Yogi Sung-Won
India Ltd
4,500 234,573 919,272 0.49 1.92
Kaashyap
Radiant Systems
Ltd
69,822 26,668,441 333,350,848 0.02 0.26
International
Hometex Ltd
206 603,628 4,510,517 0.01 0.03
Total 4,216,602 63,686,800 695,132,779 0.61 6.62
h) The trading pattern of the Noticee in the scrip of M/s Visesh
Infotecnics Ltd. reveals that he had indulged in 31 self trades
which were executed through one broker, viz. Dawnay Day AVSecurities P. Ltd. The Noticee used the same client code for
both the legs of, i.e. buy and sell, transaction. By this, he created
a volume of 9,78,842 shares (6.6% of the market volume). The
details of the same are given below:
Trade Date Buy ClientCode
Sell ClientCode
Trade Rate Trade Qty
18-Jan-08 SR021 SR021 33.45 2393621-Jan-08 SR021 SR021 30.80 36653
1-Feb-08 SR021 SR021 22.05 230613
5-Feb-08 SR021 SR021 24.25 325
7-Feb-08 SR021 SR021 24.56 5224
8-Feb-08 SR021 SR021 22.96 6447
11-Feb-08 SR021 SR021 23.01 7095
18-Feb-08 SR021 SR021 23.81 21263
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19-Feb-08 SR021 SR021 23.91 21666
20-Feb-08 SR021 SR021 23.41 16353
21-Feb-08 SR021 SR021 23.71 18675
22-Feb-08 SR021 SR021 23.70 19450
3-Mar-08 SR021 SR021 24.90 23979
4-Mar-08 SR021 SR021 23.95 13318
5-Mar-08 SR021 SR021 22.29 4719
11-Mar-08 SR021 SR021 21.50 49200
19-Mar-08 SR021 SR021 19.90 48136
24-Mar-08 SR021 SR021 17.91 32630
26-Mar-08 SR021 SR021 18.39 4199
27-Mar-08 SR021 SR021 19.24 27290
3-Apr-08 SR021 SR021 17.25 59760
4-Apr-08 SR021 SR021 16.74 57992
8-Apr-08 SR021 SR021 16.90 16201
9-Apr-08 SR021 SR021 17.07 29400
10-Apr-08 SR021 SR021 18.02 42910
15-Apr-08 SR021 SR021 17.60 3920016-Apr-08 SR021 SR021 18.00 9517
17-Apr-08 SR021 SR021 19.32 83464
21-Apr-08 SR021 SR021 21.52 14174
23-Apr-08 SR021 SR021 19.90 9053
25-Apr-08 SR021 SR021 19.95 6000
Total 978842
i) The Noticee had carried out self trades at prices varying
considerably from the previous trades and thereby established
new price in the scrip. The LTP variation of trades by the Noticee
in 5 scrips, viz. Cerebra Integrated Technologies Ltd., Glory poly
Films Ltd., Jumbo Bag Ltd., Sanra Software Ltd. and Tricom
India Ltd., is shown in the table given below:
S. No. Scrip LTP Variation
1. Cerebra Integrated Technologies Ltd. -8.08% to 9.60%
2. Glory poly Films Ltd. -4.99% to 10.78%
3. Sanra Software Ltd. -5.49% to 10.03%
4. Tricom India Ltd. -5.16% to 9.72%
5. Jumbo Bag Ltd. -2.76% to 1.67%
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j) Since the Noticee executed these self trades in such a manner
where the quantity, price and the time of execution are almost
same, they can also be classified as synchronized trading.
k) The Noticee has indulged in synchronized trading in 26
transactions with Mrs. Simran Raheja, his wife, in the various
scrips creating an artificial volume of 94,118 shares. The details
of timing, volume and price are given below:
Date Security Buy ID BOEntryTime
BOVolume
BOPrice
Sell ID SOEntrytime
SOVolume
SOPrice
1/4/2008 531675 B_692_S1IK002 10:08:09 5000 151.50 B_3085_S756 10:08:01 5000 151.50
1/4/2008 531675 B_692_S1IK002 12:16:13 5000 147.50 B_673_QMXH1 12:16:10 5000 147.50
3/3/2008 532857 B_291_56KS23 15:24:09 717 105.50 B_692_S1IK002 15:24:34 717 105.50
3/4/2008 531312 B_3085_S756 15:18:37 5000 48.40 B_692_S1IK002 15:18:21 5000 48.40
4/4/2008 532857 B_692_S1IK002 13:20:23 1000 67.00 B_3085_S756 13:20:01 1000 67.00
4/4/2008 532857 B_692_S1IK002 15:22:32 4500 67.00 B_3085_S756 15:22:22 4500 67.00
5/2/2008 532411 B_3085_S756 11:27:32 5000 24.35 B_3063_U17410 11:27:26 5000 24.35
7/3/2008 532857 B_692_S1IK002 13:50:02 2000 102.40 B_3055_401S095 13:49:58 2000 102.40
7/4/2008 531675 B_3118_33000042 10:33:00 1000 143.80 B_3085_S756 10:32:52 1000 143.80
7/4/2008 532857 B_3118_33000042 10:46:02 2500 64.50 B_673_QMXH1 10:45:55 2500 64.50
8/4/2008 531675 B_3118_33000042 10:37:54 100 140.90 B_3085_S756 10:37:48 100 140.90
8/4/2008 531675 B_673_QMXH1 14:12:00 10000 141.00 B_3085_S757 14:11:31 10000 141.00
9/4/2008 523277 B_3085_S756 12:49:23 3000 5.47 B_3118_33000042 12:49:10 3000 5.47
9/4/2008 523277 B_3085_S756 13:05:07 2500 5.47 B_3118_33000042 13:04:35 2500 5.47
12/3/2008 532413 B_692_S1IK002 11:36:10 1000 35.00 B_3085_S756 11:36:03 1000 35.00
14/02/2008 532413 B_3118_33000042 15:09:22 2000 29.40 B_673_QMXH1 15:09:13 2000 29.40
16/04/2008 532413 B_3085_S756 11:24:47 1000 33.35 B_3118_33000042 11:24:42 1000 33.35
17/01/2008 532411 B_3055_401S095 15:00:09 20000 34.00 B_692_S1IK002 14:59:51 20000 34.00
17/04/2008 531675 B_692_S1IK002 10:10:15 1 142.45 B_3055_401S095 10:09:49 1 142.45
17/04/2008 531675 B_3085_S756 12:15:55 5000 138.50 B_3118_33000042 12:15:54 5000 138.50
23/04/2008 531675 B_673_QMXH1 11:26:41 3500 148.00 B_692_S1IK002 11:26:52 3500 148.00
23/04/2008 532413 B_3085_S756 15:06:46 8000 36.85 B_3118_33000042 15:05:53 8000 36.85
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27/03/2008 531312 B_3085_S756 10:37:27 500 38.00 B_692_S1IK002 10:37:49 500 38.00
28/01/2008 532413 B_692_S1IK002 15:06:13 100 29.75 B_3085_S756 15:05:46 100 29.75
28/03/2008 531675 B_692_S1IK002 10:34:45 4000 148.90 B_3085_S756 10:34:16 4000 148.90
29/04/2008 532857 B_692_S1IK002 15:12:14 1700 65.00 B_3085_S756 15:12:07 1700 65.00
11. In this regard, it would be pertinent to refer to the observations and
decisions of the Honble SAT in the following matters where the
entities were involved in self trades and synchronized trades.
(a) In the matter of Ask Holdings Pvt. Ltd. vs. SEBI, Honble SAT has
held ..The buyer and the seller were the appellants themselves and
these trades were executed primarily with a view to artificially increasethe trading volumes in the scrip of the Company. Artificial increase in
the volumes of scrip has the adverse effect on the innocent investors of
the market who get induced to buy the shares because they seldom have
knowledge about the scrip and follow the herd mentality while trading.
The adjudicating officer was, therefore, right in holding that the
appellants had violated the provisions of Regulation 4 of the Securities
& Exchange Board of India (Prohibition of Fraudulent & Unfair Trade
Practices relating to Securities Market) Regulations, 1995. The
allegations are rather serious and the appellants by indulging in
artificial trades had polluted the stock market. The penalty of Rs. 10
lakh imposed appears to be reasonable in the circumstances of the
present case and it does not call for any interference in appeal.
(b) The Honble SAT, in Ketan Parekh Vs. Securities & Exchange Board
of India (Appeal No. 2 of 2004), observed that, A synchronized
transaction even on the trading screen between genuine parties who
intend to transfer beneficial interest in the trading stock and who
undertake the transaction only for that purpose and not for rigging the
market is not illegal and cannot violate the regulations. As already
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observed synchronisation or a negotiated deal ipso facto is not illegal.
A synchronised transaction will, however, be illegal or violative of the
Regulations if it is executed with a view to manipulate the market or if it
results in circular trading or is dubious in nature and is executed with a
view to avoid regulatory detection or does not involve change of
beneficial ownership or is executed to create false volumes resulting in
upsetting the market equilibrium. Any transaction executed with the
intention to defeat the market mechanism whether negotiated or not
would be illegal. Whether a transaction has been executed with the
intention to manipulate the market or defeat its mechanism will depend
upon the intention of the parties which could be inferred from the
attending circumstances because direct evidence in such cases may not
be available. The nature of the transaction executed, the frequency with
which such transactions are undertaken, the value of the transactions,
whether they involve circular trading and whether there is real change
of beneficial ownership, the conditions then prevailing in the market are
some of the factors which go to show the intention of the parties. This
list of factors, in the very nature of things, cannot be exhaustive. Any
one factor may or may not be decisive and it is from the cumulative
effect of these that an inference will have to be drawn.
(c) In the case of Ashok K Chaudhary v SEBI, Appeal No 69 of 2008,
dated November 5, 2008, the Honble SAT observed that such
large number of reverse trades cannot take place through the
mechanism of the system. These have obviously been manipulated.
Moreover, reverse trades are fictitious trades meant to increase
volumes on the screen of the trading system as there is no change of
beneficial ownership in the traded shares.
(d) The Honble SAT, in Nirmal Bang Securities Pvt. Ltd Vs Chairman,
SEBI, Appeal no. 54-57/2002, dated October 31, 2003 observed
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as follows: - BEB has been charged for synchronized deals with First
Global. I have examined the data provided by the parties on this issue. I
find many transactions between BEB and FGSB. There are many
instances of such transactions. I find the scrip; quantity and price for
these orders had been synchronized by the counter party brokers. Such
transactions undoubtedly create an artificial market to mislead the
genuine investors. Synchronized trading is violative of all prudential
and transparent norms of trading in securities. Synchronized trading on
a large scale can create false volumes. The argument that the parties
had no means of knowing whether any entity controlled by the client is
simultaneously entering any contra order elsewhere for the reason that
in the online trading system, confidentiality of counter parties is
ensured, is untenable. It was submitted by the Appellants that it was not
possible for the broker to know who the counter party broker is and that
trades were not synchronized but it was only a coincidence in some
cases. Theoretically this is OK. But when parties decide to synchronize
the transaction the story is different. There are many transactions
giving an impression that these were all synchronized, otherwise there
was no possibility of such perfect matching of quantity price etc. As theRespondent rightly stated it is too much of a coincidence over too long
a period in too many transactions when both parties to the transaction
had entered buy and sell orders for the same quantity of shares almost
simultaneously.
12. The method and the manner in which the trades were executed are
the most important factors to be considered in these circumstances.
The motive, thereafter, automatically falls in line. Trades like cross
deals and synchronized trades are executed on the trading screen of
a stock exchange and with proper delivery versus payment system.
Clearly in almost all the deals, the orders are placed so as to ensure
a matching of the buy and the sell quantity and the buy and the sell
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price with the counter party. The buy and the sell orders are placed at
almost the same time between the counter brokers, with a difference
of a few seconds to few minutes. This proximity in the inputting of
orders at the same price and for the same quantity, results in getting
them matched, such that there is almost perfect matching in all the
trades, with all the three parameters, viz., quantity, price and most
importantly, the time required to conclude the trades, which to a large
extent indicates synchronization in the logging in of the orders, albeit
executed on the screen of the stock exchange.
13. This is what has transpired in the present case. The only difference is
that in most of the instances the Noticee himself was the buyer and
seller. A large number of self trades got matched regularly. The
phenomenal regularity with which the Noticee had indulged in such
self trades, leads one to conclude, that these transactions were
effectively meant to manipulate the market. It is my considered belief
that frequency of such trades ensured consistent matching of the
orders purely for the purpose of projection of the volumes of the
scrips in a way that was not the market determined volumes but with
a sinister motive to induce other persons to invest in the said scrips
which lacked basic fundamentals.
14. In case an entity is alleged to have manipulated the market or
distorted the market equilibrium in terms of the PFUTP and their acts
are corroborated up to a certain extent by the investigation findings,
then the underlying intention of the said entity is brought out.
Furthermore, price manipulation does not only involve the
manipulation in the prices of the scrip but also includes building up of
volumes. This is evident from the finding that the Noticee had
indulged in self trades and created an artificial volume of 42,16,542
shares in the said scrips.
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15. The Noticee had also indulged in synchronized trading with his wife
creating an artificial volume of 94,118 shares. The price and volume
of all the transactions were exactly same. Moreover, the time
difference between the placement of orders was few seconds.
16. The fact is that had the aforesaid discussed trades been executed in
the normal course of business, the possibility of such perfect
matching would not have been possible. The buy and sell prices of
one entity were close to the buy/sell rates of the other entity in all the
settlements, such that the trades of these entities were always
matched. The transactions as pointed out in the table/s earlier and
spread over a period of time are definitely done with some inbuilt
component of intent involved. Greater the number of such
self/synchronized trades, the larger is the chances of trades not
being genuine in nature, which is bound to affect the market
equilibrium. A trade can be executed on the screen and still be
manipulative in nature. Considering the number of such trades, it is
clear that there has been a gross mis-use of the screen based
trading system. It is also to be stated that intention is inherent in all
cases of synchronized trading involving large scale price
manipulation and the same was also brought out in the earlier cited
case of Nirmal Bang Securities (P) Ltd. vs SEBI by the Honble SAT
whereby it was observed that Intention is reflected from the action of
the Appellant. Choosing selective time slots does not appear to be an
involuntary action. Hence, the contention of the Noticee, whereby the
Noticee had referred to the order in respect of Nirmal Bang Securities
(P) Ltd. is devoid of merit.
17. I have considered the submissions of the Noticee countering the
allegations leveled against him. One of the main submissions of the
Noticee was that he indulged in the transactions merely for
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maintaining margins with his respective brokers. In my view, the
Noticee through the said artificial trades interfered with the market
equilibrium and thereby affected the manipulation of price and
volume of the said scrips. Even assuming, without agreeing to the
claim of the Noticee, that these trades were executed for margin
purposes, in my view, nobody can be allowed to create artificial
volume and thereby manipulate the prices in the securities market
which have potential to induce the innocent investor in buying and
selling particular scrip. The trades executed herein by the Noticee
were admittedly not the real trades as there was no intention to
change the beneficial ownership. When the trades were inherently
non genuine, I do not feel that it is necessary to prove that investors
had, in fact got induced and bought and/ or sold on the basis of these
trades. Similar views were expressed by the Honble SAT in its order
dated 14.7.2006 in Ketan Parekh Vs. SEBI wherein it had observed
that When a person takes part in or enters into transactions in securities
with the intention to artificially raise or depress the price he thereby
automatically induces the innocent investors in the market to buy /sell their
stocks. The buyer or the seller is invariably influenced by the price of the
stocks and if that is being manipulated the person doing so is necessarily
influencing the decision of the buyer / seller thereby inducing him to buy or
sell depending upon how the market has been manipulated. We are
therefore of the view that inducement to any person to buy or sell securities
is the necessary consequence of manipulation and flows therefrom. In other
words, if the factum of manipulation is established it will necessarily follow
that the investors in the market had been induced to buy or sell and that no
further proof in this regard is required. The market, as already observed, is
so wide spread that it may not be humanly possible for the Board to track
the persons who were actually induced to buy or sell securities as a result of
manipulation and law can never impose on the Board a burden which is
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impossible to be discharged. This, in our view, clearly flows from the plain
language of Regulation 4(a) of the Regulations.
18. I have also considered the submission of the Noticee with regard to
his trading volume vis-a-vis paid up capital of the respective
companies. Though the trading volume of the Noticee as compared
to the paid up capital of the respective companies may be low, the
trading volume as compared to the market volume is substantially
high. The trading pattern also indicates the manipulative intent of the
Noticee. Therefore, his submission in this regard is not acceptable.
19. I have also noted the submission of the Noticee made vide letter
dated April 13, 2009 that the allegations were made on the basis of
mere surmises and conjectures and perused the case law of
videocon relied upon by him in this regard. I am of the view that the
material available on record and my findings stated in the above
paragraphs clearly show the inbuilt intension of the Noticee to
manipulate the trading in the said scrips by creating artificial volumes
attracting innocent investors to invest in those scrips. The trading
pattern, details of transactions, etc., detailed above also make it clear
that sufficient evidence is available to establish the allegation against
the Noticee. Hence, I do not find any merit in the submission of the
Noticee in this regard.
20. Regulation 4(2)(a) of PFUTP, inter alia, prohibits a person from
indulging in an act which creates false or misleading appearance of
trading in the securities market. Regulation 4(2)(b) of PFUTP, inter
alia, prohibits dealings in a security intended to operate as a device
to inflate, depress or cause fluctuations in the price of such security
for wrongful gains. Regulation 4(2)(g) of PFUTP prohibits a person
from entering into a transaction in securities without intention of
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performing it or without intention of change of ownership of such
security. As detailed above, the acts of the Noticee clearly created
false and misleading appearance in all the 12 scrips and also that he
did not act in a bonafide manner. The facts of the case highlight the
Noticees involvement, by executing continuous self trades in a
substantial manner, in the manipulation of price/volume of all the
scrips which led to creation of artificial volumes and misleading
appearance of trading in the said shares. As the Noticee acted as
both the buyer and the seller, there does not appear to be any
genuine trading interest in the scrips.
21. In order to establish the fraudulent nature of trades indulged in by the
Noticee, reference may also be made to the definition of fraud laid
down in regulation 2 (1) (c) of the PFUTP, which reads as follows:
"2 (1)(c) "fraud" includes any act, expression, omission or
concealment committed whether in a deceitful manner or not by a
person or by any other person with his connivance or by his agent
to deal in securities,whether or not there is any wrongful gain or
avoidance of any loss,
22. Generally, self trades/ synchronized trades are the instruments/tools
employed by some unscrupulous elements in the securities market to
manipulate the market and deceive the general/genuine investors in
the market place. The pattern of trading, behaviour of the entities,
apparent irregularities and the available trading data, etc., prove
manipulation which always depends on inferences drawn on a mass
of factual detail. When all of these are considered together, they can
emerge as ingredients to prove the manipulative scheme designed
and executed by such manipulators with intent to tamper with free
market forces.
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23. In view of foregoing, I find that the submissions of the Noticee are not
tenable and consequently, hold that the charges leveled against the
Noticee are proved and that the allegation of violation of provisions of
regulations 4 (2) (a), (b) and (g) of PFUTP by the Noticee stands
established.
24. The Honble Supreme Court of India in the matter of SEBI Vs. Shri
Ram Mutual Fund[2006] 68 SCL 216(SC) held that In our considered
opinion, penalty is attracted as soon as the contravention of the statutory
obligation as contemplated by the Act and the Regulations is established
and hence the intention of the parties committing such violation becomes
wholly irrelevant.
25. Thus, the aforesaid violation by the Noticee make him liable for
penalty under Section 15HA of SEBI Act, 1992 which read as follows:
Penalty for fraudulent and unfair trade practices15HA. If any person indulges in fraudulent and unfair trade practices
relating to securities, he shall be liable to a penalty of twenty-five crore
rupees or three times the amount of profits made out of such practices,
whichever is higher.
26. While determining the quantum of penalty under section 15HA, it is
important to consider the factors stipulated in section 15J of SEBI
Act, which reads as under:-
15JFactors to be taken into account by the adjudicating officerWhile adjudging quantum of penalty under section 15-I, the
adjudicating officer shall have due regard to the following factors,
namely:-
(a) the amount of disproportionate gain or unfair advantage,
wherever quantifiable, made as a result of the default;
(b) the amount of loss caused to an investor or group of
investors as a result of the default;
(c) the repetitive nature of the default.
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27. It is difficult, in cases of such nature, to quantify exactly the
disproportionate gains or unfair advantage enjoyed by an entity and
the consequent losses suffered by the investors. I have noted that
the investigation report also does not dwell on the extent of specific
gains made by the Noticee. Suffice to state that keeping in mind the
practices indulged in by the Noticee, gains per se were made by the
Noticee in that he traded in various scrips in a manner meant to
create artificial volumes and liquidity which is an important criterion,
apart from price, capable of misleading the investors while making an
investment decision. In fact, liquidity/volumes in particular scrip raise
the issue of demand in the securities market. The greater the
liquidity, the higher is the investors attraction towards investing in
that scrip. Hence, anyone could have been carried away by the
unusual fluctuations in the volumes and been induced into investing
in the said scrip. Besides, this kind of activity seriously affects the
normal price discovery mechanism of the securities market. People
who indulge in manipulative, fraudulent and deceptive transactions,
or abet the carrying out of such transactions which are fraudulent and
deceptive, should be suitably penalized for the said acts of omissions
and commissions. Considering the continuous effort of the Noticee in
this aspect where the self trades/synchronized trades were carried
out over a period of time and that too in as many as 12 scrips, it can
safely be surmised that the nature of default was also repetitive.
ORDER
28. After taking into consideration all the facts and circumstances of the
case, I impose a penalty of Rs.8,00,000/- (Rupees Eight Lakh only)
under section 15HA of SEBI Act on the Noticee which will be
commensurate with the violation/s committed by him.
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29. The Noticee shall pay the said amount of penalty by way of demand
draft in favour of SEBI - Penalties Remittable to Government of
India, payable at Mumbai, within 45 days of receipt of this order. The
said demand draft should be forwarded to Mr.S. Ramann, Officer on
Special Duty, Integrated Surveillance Department, Securities and
Exchange Board of India, SEBI Bhavan, Plot No.C4-A, G Block,
Bandra Kurla Complex, Bandra (East), Mumbai400 051.
30. In terms of rule 6 of the Rules, copies of this order are sent to the
Noticee and also to the Securities and Exchange Board of India.
Date: May 11, 2009 V.S.SUNDARESANPlace: Mumbai ADJUDICATING OFFICER