The Securities and Exchange Board of India (SEBI) has barred Madhav Stock Vision Pvt. Ltd. (MSV) and five associated individuals from the securities market for one year after finding that they illegally front-ran trades placed by the Life Insurance Corporation of India (LIC) over a period of nearly three-and-a-half years.
In its final order, SEBI directed the noticees to disgorge Rs 2.51 crore in unlawful gains along with 12% simple annual interest and imposed a Rs 5 lakh penalty on each of the six entities, taking the total penalty to Rs 30 lakh.
How the front-running scheme worked?
Front-running is an illegal practice where a trader uses confidential information about a large upcoming transaction to trade ahead of it and profit from the expected price movement.
According to SEBI, the scheme did not involve hacking, data theft, or an insider at LIC. Instead, it relied on something far simpler.
LIC executes many of its stock market orders through empanelled brokers. Three of those brokers: Bhagwandas Gordhandas Financial (BGF), Jamnadas Virji Shares (JVS), and Santosh Kumar Kejriwal Securities (SKS), operated dealing desks from the same office in Malad, Mumbai.
SEBI found that Jyotiswaroop Purohit and Pankit Jhaveri, dealers at BGF, could overhear confidential phone conversations between LIC dealers and neighbouring brokers handling LIC orders. They allegedly passed those trade details to Rajesh Jhaveri, a dealer at Madhav Stock Vision, before the orders reached the market.
MSV then bought shares ahead of LIC's purchase orders or sold ahead of LIC's sale orders through its proprietary trading account. Once LIC's large trades moved stock prices, MSV exited the positions for quick profits.
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Phone calls and WhatsApp chats became key evidence
SEBI's investigation began after its surveillance systems detected suspicious trading patterns.
During searches conducted in December 2023, the regulator recovered call records, recorded phone conversations, WhatsApp chats, bank statements, and statements recorded under oath.
One recorded conversation showed Purohit pretending to speak with his mother by saying "Bol mummy" before secretly relaying LIC's upcoming Voltas order to Rajesh Jhaveri.
In another instance involving Bajaj Auto shares in April 2021, Purohit informed Rajesh Jhaveri about LIC's planned purchase of 12,800 shares at Rs 3,515. MSV immediately purchased 3,000 shares before LIC's order was executed and later sold those shares directly into LIC's buying, earning nearly Rs 24,000 in less than three minutes.
SEBI also found that Purohit received login credentials to another broker's trading terminal through WhatsApp, giving him access to confidential LIC order emails.
Profits disguised as salaries
The regulator found that the illegal gains were shared through a 75:25 profit-sharing arrangement, with 75% going to Purohit and Pankit Jhaveri and 25% to Rajesh Jhaveri.
According to SEBI, MSV directors Ajay Jain and Rajkumar Damani disguised these payments by placing family members of those involved on the firm's payroll and transferring money as monthly salaries.
Recorded conversations cited in the order showed discussions about salary amounts and tax implications while arranging these payments.
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Nearly 1,700 front-running trades
SEBI identified 1,693 instances of front-running across 754 trading days between April 2020 and December 2023.
The trades involved a gross turnover of around ₹2,600 crore and generated illegal profits of Rs 2.51 crore, averaging roughly Rs 1,500 per transaction.
The accused later admitted that the equity cash trades could be viewed as front-running and deposited the alleged unlawful gains before the show-cause notice was issued.
However, they disputed profits linked to futures and options trades. SEBI accepted that argument and excluded Rs 21.67 lakh in F&O gains from the final disgorgement amount.
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