sebi:PT/AO-04/2012

SEBI · SEBI · Praveen Trivedi, Adjudicating Officer

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Facts / Headnote

Guilty of violating regulations 4(1) and 4(2)(a),(b),(e),(g) and (n) of PFUTP Regulations; penalty of Rs. 50,000 imposed under section 15HA of the Act. Charge under regulation 4(2)(c) not proved.

Provisions invoked

• s. 15
• s. 15H
• s. 15J

Regulations

• Reg. 3
• Reg. 4(1)
• Reg. 4(2)(c)

Parties

• Shri Pankaj Gupta

Holding

Shri Pankaj Gupta was held guilty of violating regulations 4(1) and 4(2)(a),(b),(e),(g) and (n) of the PFUTP Regulations for executing structured/reversed trades in the scrip of VIL, and a penalty of Rs. 50,000 was imposed under section 15HA of the SEBI Act. The charge under regulation 4(2)(c) was not proved as it was not relevant to the alleged transactions.

Full text

Page 2 of 11 (v) Trades of ISSL accounted for 37.58% of gross traded quantity on the NSE; (vi) Trades by ISSL were executed by it on behalf of its sub-broker, Monalisha Securities Private Ltd. (hereinafter referred to as “MSPL”) for its ultimate clients Shri Pankaj Gupta (hereinafter referred to as “Shri Gupta”) and M/s. Classic Investments; (vii) During the investigation period, MSFL had dealt for a total of 07 days while ISSL did so for 06 days. Except for 19.05.2004 when MFSL had purchased and sold 03 shares, on all other days, ISSL and MSFL purchased and sold same number of shares; (viii) On all the 06 days, ISSL had first put the buy order which had matched with a corresponding sell order by MSFL. Likewise, while squaring off/reversing its position, ISSL had put the sell order first, followed by a matching buy order from MSFL. The time difference in matching order on each day ranged between 2 to 20 seconds. The time difference in reversal of trades also varied from 2 to 22 seconds; (ix) When MSFL and ISSL were trading (except on 19.05.2004) volumes increased at NSE and ranged between 8400 to 20600 while on the remaining days it was in the range of 1 shares to 2650 shares only; (x) MSFL and ISSL were involved in 16 structured deals across 06 settlements during the period. The difference in the price of the first trade and that of the reversed trades ranged from 3.64% to 8.85%. (xi) Similar trading pattern had also been observed between MSFL and ISSL in the same scrip of V

Page 3 of 11 (iii) MSFL has purchased and sold 17,000 shares and contributed about 39.02% of the gross traded quantity at NSE during the relevant period; (iv) All the trades by MSFL were executed by it in its proprietary account whereas the trades by ISSL were executed by it mainly for its client viz: M/s. Classic Investments. M/s. Classic Investment traded through MSPL, a sub-broker of ISSL; (v) Out of the 17000 shares purchased and sold by MSFL, for 12000 shares ISSL was the counter party broker. ISSL had purchased and sold 12000 shares only during the relevant period; (vi) MSFL traded for 4 days whereas ISSL traded for 3 days. Except for 04.06.04 when MSFL purchased and sold 5000 shares, on all other days, both MSFL and ISSL purchased and sold the same number of shares; (vii) On all the 03 days, ISSL was first buyer and MSFL was the counterparty seller. Thereafter, they reversed the position. The time difference in matching orders on each day ranged between 4 to 12 seconds. The time difference in reversal of trades also varied from 4 to 16 seconds; (viii) MSFL and ISSL were involved in 13 structured deals across three settlements during the investigation period; (ix) The difference in the price of the first trade and the reversed trade ranged from 1.36% to 8.03%; (x) MSFL incurred a loss of about Rs. 1,34,000/- for its dealing in the scrip; (xi) 12000 shares dealt by ISSL accounted for 27.54% of the gross traded quantity of the market; (xii)M/s. Classic Investments earned

Page 4 of 11 SHOW CAUSE NOTICE AND OTHER PROCEEDINGS: 4. In view of the above observations, SEBI initiated adjudication proceedings against MSFL, ISSL, MSPL, M/s. Classic Investments and Shri Pankaj Gupta. For this purpose, Shri Amit Pradhan, the then Deputy Legal Adviser was appointed as adjudicating officer vide competent authority’s order dated 02.06.2006. The adjudicating officer issued a show cause notice dated 16.10.2006 to aforesaid persons including Shri Gupta, the noticee herein. In the show cause notice issued to Shri Gupta, with respect to his trading in VIL, he was called upon to explain as to why an inquiry should not be held against him, in terms of rule 4(3) of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as “the Rules”) for the alleged violations of the regulations 4(1) and 4(2)(a),(b),(c),(e),(g) and (n) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”). The present order deals with adjudication proceedings initiated against Shri Gupta only, vide aforesaid show cause notice.

Source: SecMarx — sebi:PT/AO-04/2012. 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.