Capital markets regulator Sebi on Friday barred 12 entities from the securities markets for five years and imposed penalties totalling Rs 90 lakh for their involvement in a front-running case.
The regulator also directed the entities to disgorge the unlawful gains of Rs 1.07 crore along with 12 per cent interest per annum, jointly and severally, to the Investor Protection and Education Fund within 45 days.
In a 102-page final order, Sebi found that Big client (Paresh N Bhagat, Chairman and Managing Director of Mangal Keshav Financial Services) had placed orders through his dealers, Ashish S Parekh and Rajesh Joshi, who were in possession of the non-public information (NPI).
The order noted that Parekh and Joshi had shared confidential information with Nagendra S Dubey and Chirag Atul Pithadia, who then used it to place orders in the trading accounts of connected entities/ front runners in advance of the impending orders of the Big client.
"Therefore, in my view, these trades carried out by the front runners, i.e. Noticees nos 1 to 9 in collusion with Noticee nos. 10 to 13, i.e. the Information Carriers, should be termed as trades carried out by front running the impending orders of the Big client," Sebi's whole-time member Kamlesh C Varshney said in the order.
The front-runners include Dipa Ashish Parekh, Kashmira Joshi, Nikhil Hirachand Jain, Nikhil Hirachand Jain HUF, Alpesh Hirachand Jain HUF, Nagendra S Dubey HUF, and Late Sushma Nagendra Dubey through her legal heirs, Jagruti Atul Pithadia and Sahil Atul Pithadia, the order said.
The regulator further stated that using NPI about impending Big client orders to execute front-running trades amounted to fraudulent, manipulative and unfair trade practices in nature.
"The front-running transactions and allegations against noticee nos 1 to 13 in the SCN stand established... the activity of trading based on non-public information, by the noticees, is in violation of PFUTP regulations," Varshney said.
Accordingly, the regulator restrained Noticees Nos 1-13 from dealing in securities for five years from the date of the interim order of December 26, 2022. Kashmira and Rajesh Joshi were also prohibited for five years.
Sebi prohibited Ashish, Nagendra and Chirag from associating with any Sebi-registered intermediary or company for four years, while Rajesh was similarly barred from such association for four years.
The regulator vacated earlier directions against Late Sushma Nagendra Dubey, except for disgorgement through her legal heirs -- Nagendra S Dubey and Abhay Dubey.
In addition to disgorgement, Sebi imposed monetary penalties ranging between Rs 5 lakh and Rs 15 lakh on the entities.
The order came after Sebi received a preliminary examination report from NSE on suspected front running by Parekh and connected entities. The regulator later issued an interim order in December 2022 and a confirmatory order in December 2023 after its investigation covering April-December 2021.
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