- SEBI fined eight entities Rs 1.5 crore for front-running trades using non-public info
- Unlawful gains of Rs 1.29 crore plus 12% interest to go to Investor Protection Fund
- Ashok Maheshwari shared client info with Darshan Bakul Shah for profit sharing
Markets regulator Sebi has imposed penalties totalling Rs 1.5 crore on eight entities for front-running trades of a portfolio management services (PMS) client using non-public information.
The regulator also directed disgorgement of unlawful gains amounting to Rs 1.29 crore, along with 12 per cent annual interest, to be credited to the Investor Protection and Education Fund (IPEF).
In its final order, Sebi found that Ashok Maheshwari (Noticee 1), who had access to confidential trading information of a "Big Client", shared details of impending large orders with Darshan Bakul Shah (Noticee 2) under a profit-sharing arrangement.
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Acting on these information, Shah executed trades not only in his own account but also in the accounts of his wife Khusboo Darshan Shah and HUF entity, besides extending the scheme to Benzer Department Stores Pvt Ltd, CHL Stock Concepts Pvt Ltd and other connected entities.
"The inter se connections among the noticees, the intricate digital evidence, and the consistent pattern of price-time matching with the Big Client's trades clearly establish a deliberate scheme to exploit advance knowledge of institutional orders," Sebi said in its 78-page order.
The regulator observed that front-running stems from information asymmetry and is not dependent on the liquidity of the scrip, rejecting arguments that trades executed through different brokers could not qualify as front-running.
Sebi also held Mihir Dhirajalal Savla and Chirag Mahendra Shah guilty of making false statements during the investigation to conceal misuse of client accounts.
Accordingly, Sebi held Ashok Maheshwari, Darshan Bakul Shah, Khusboo Darshan Shah, Darshan Bakul Shah (HUF), Benzer Department Stores Pvt Ltd, Mihir Dhirajalal Savla, CHL Stock Concepts Pvt Ltd and Chirag Mahendra Shah guilty of violating provisions of the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) regulations.
"I deem the conduct of Noticees 1, 2, 7 and 8, who were either dealers or authorised persons associated with stock brokers, in perpetrating the front running scheme to be particularly appalling and consider it as an aggravating factor worthy of harsher directions on these Noticees in respect of their access to Sebi registered intermediaries," Sebi Whole Time Member Amarjeet Singh said.
Moreover, entities have been barred from accessing the securities market for varying periods, taking into account the debarment already undergone following the interim order.
Additionally, Ashok Maheshwari, Darshan Bakul Shah and Chirag Mahendra Shah have been restrained from holding positions as directors or key managerial personnel in listed companies or Sebi-registered intermediaries for a period of two years.
The penalties imposed include Rs 25 lakh each on Ashok Maheshwari and Darshan Bakul Shah, Rs 20 lakh each on CHL Stock Concepts and Chirag Mahendra Shah, and Rs 15 lakh each on the remaining entities, with an additional Rs 1 lakh penalty each on Mihir Dhirajalal Savla and Chirag Mahendra Shah for making false statements.
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