sebi:10145

SEBI · SEBI · 2004-07-30 · G. N. Bajpai, Chairman

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Facts / Headnote

Certificate of registration of M/s CFL Securities suspended for a period of six months; surrender of membership not to be approved till completion of suspension period.

Regulations

• Reg. 4
• Reg. 7
• Reg. 4(b)
• Reg. 13(4)

Parties

• M/s CFL Securities

Holding

CFL Securities was held guilty of indulging in structured deals and creating artificial volumes in the scrips of Ravalgaon Sugar Farms Ltd and Shrenuj & Co Ltd, violating Regulations 4(b), 4(c) and 4(e) of the SEBI (FUTP) Regulations and failing to exercise due diligence contrary to clauses A(1), A(2), A(3) and A(4) of the Code of Conduct read with Regulation 7 of the SEBI (Stock Brokers and Sub-brokers) Regulations. Its certificate of registration was suspended for six months.

Full text

Investigations were conducted by SEBI into the unusual price rise and volumes in the scrips of Ravalgaon Sugar Farms Ltd (hereinafter referred to as Ravalgaon) and Shrenuj & Co Ltd (Shrenuj). The price of Ravalgaon had risen by 41.77%, from Rs.3220/- on 23.5.2001 to Rs.4565/- on 19.6.2001 with fluctuating volumes. Similarly, price rose by 10.75% from Rs 39 on May 04, 2001 to Rs 43.7 on May 14, 2001 in Shrenuj also. On examination of the data of trade log and order log, SEBI noticed possible violations of the provisions of SEBI Act, 1992, SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 [hereinafter referred to as SEBI (Stock Broker Regulations)] and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations,1995 [hereinafter referred to as SEBI (FUTP) Regulations] by M/s CFL Securities (hereinafter referred to as ‘CFL’), a member of National Stock Exchange (NSE). It was found to have executed structured deals in violation of SEBI circular dated 14.09.’89 and also have created artificial volumes in violation of SEBI (FUTP) Regulations in both the aforementioned scrips. Pursuant to the investigation, enquiry was conducted under SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 [hereinafter referred to as SEBI (Enquiry) Regulations] the possible violations as aforesaid by CFL. On completion of the enquiry, the Enquiry Officer (hereinafter referred to as E.O.), arrived at the finding th

A show cause notice was sent to CFL on July 20, 2004 wherein while communicating findings of enquiry officer, they were asked to show cause as to why the action as may be considered appropriate should not be taken against them. REPLY Vide its reply dated July 30, 2004 CFL submitted as under: a. That they have executed couple of transactions in the scrip of Ravalgaon Sugar Farms Ltd and Shrenuj & Co. Ltd during the period May 4, 2001 to June 29, 2001 with their group associates and clients only to arrange temporary funding to meet their obligations at NSE/BSE. b. That they did not have intention, at any point of time during those transactions to create artificial volume. The volumes so created were incidental due to the repeated transactions done for the purpose of funding. c. That they were not benefited by doing those transactions. Theirs was an attempt to survive in the midst of hardships. d. That they have not sold any of these shares at a higher price than the buy price, and as such no investor suffered any loss due to those transactions. e. That they used the payment received from Aditi A.Dalal (which they received through D.G.P.Securities/Ashadevi Beriwala), for meeting the pay-in obligations at NSE from time to time). While furnishing the copy of relevant bank statements they gave following examples in support of their

ii. On 12.6.01, CFL/Tropical received Rs.85 lacs from Aditi A.Dalal who in turn had received this money from D.G.P.Securities on behalf of Ashadevi Beriwala which was used for their NSE pay-in on account of CFL Securities. iii. On 26.6.01, CFL/Tropical received Rs.80 lacs from Aditi a Dalal who in turn had received this money from D.G.P.Securities on behalf of Ashadevi Beriwala which was used for their NSE pay-in. That, at some point of time the cycle of repeated transactions had to come to an end. Ultimately they were not able to fulfill the pay-in obligation of the NSE settlement on 16th October 2001 and due to the same, their NSE terminal was deactivated on October 16, 2001. That the pay-out of shares including Ravalgaon Sugar Farm Ltd and Shrenuj & Co. Ltd were retained by NSE and they sold the shares directly to settle all dues of CFL towards pay-in obligations. Further, while enclosing a statement showing the total shares or Ravalgaon & Shrenuj sold by NSE after October 16, 2001 and statements of Final Obligations & Final Delivery for the settlement through which shares were directly sold by NSE, it was submitted that this statement, will prove that their intention for doing these transactions was only to make temporary funding and not to create artificial volumes or price rigging or any type of fraudulent manipulation in the stock market. That NSE has already levied monetary penalty on CFL for the transactions done in the scrip of Ravalgaon Sugar and Shrenuj & Co. That

Source: SecMarx — sebi:10145. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.