sebi:WTM/KMA/ERO/IVD/286/07/2010
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Facts / Headnote
Warning issued to the stock broker; enquiry proceedings disposed of
Provisions invoked
- s. 19
Regulations
- Reg. 28(2)
- Reg. 4(2)(a)
- Reg. 4(2)(e)
Parties
- M/s. Deepak Jhunjhunwala & Co.
Holding
The Broker violated Regulations 4(2)(a) and 4(2)(e) of the PFUTP Regulations and Clause A(2) of the Code of Conduct for stock brokers, and a penalty of warning was imposed under Regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008.
Full text
Page 2 of 9 Rs.225/- on February 25, 2005, an increase by 11,438%. It was further noticed that the stock brokers, namely, M/s. Dinesh Kumar Lodha, Subh Stock Broking Private Limited, M/s. S. Jhunjhunwala & Co. and M/s. Deepak Jhunjhunwala & Co (hereinafter referred to as the Broker) had traded substantially in the shares of the company and that their cumulative trades accounted for 98.23% of the total (buy and sell) volumes traded in the shares of the company at CSE during the investigation period. In view of the findings of the said investigation, it was alleged that the transactions of the Broker were not genuine and were inter alia designed to create false and misleading appearance of trading in the shares of the company. The Broker was alleged to have contravened the provisions of Regulations 4(2)(a), 4(2)(e) and 4(2)(o) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as the PFUTP Regulations) and clauses A(1), A(2), A(3), A(4) and B(4)(a) of the Code of Conduct prescribed for stock brokers under Schedule II of the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 (hereinafter referred to as the Broker Regulations).
Page 3 of 9 Regulations and Clauses A(1),(3) & (4) and B(4)(a) of the Code of Conduct prescribed for stock brokers under Schedule II of the Broker Regulations were not established. The Enquiry Officer recommended that a warning be issued to the Broker. Pursuant to the submission of the said Report, a notice dated February 13, 2009 was issued to the Broker calling upon it to show cause as to why the penalty as recommended by the Enquiry Officer or as considered appropriate by SEBI should not be imposed against it. A copy of the Enquiry Report was also forwarded to the Broker along with the said notice. In reply, the Broker, vide letter February 19, 2009 requested not to impose the penalty as recommended, in view of the various observations made by the Enquiry Officer. Thereafter, an opportunity of hearing was also granted to the Broker on May 8, 2009. As, SEBI was prima facie not satisfied with the findings of the Enquiry Officer in respect of the alleged matched and cross deals of the Broker for which a benefit of doubt was given, a supplementary notice dated June 16, 2009 was issued by SEBI requiring the Broker to show cause as to why the cross/matched deals executed by it are not prima facie in violation of Regulation 4(2)(a) and (e) of the PFUTP Regulations. No reply was submitted by the Broker to the said show cause notice. Thereafter, the Broker filed an application for a consent order in terms of SEBI circular dated April 20, 2007. In view of the same, the present proce
Page 4 of 9 carried out by it were on the order matching mechanism of the stock exchange where the identity of the counter party was not disclosed. The Broker further contended that since there were only a few stock brokers active in CSE; there was a high degree of possibility of its trades matching with other stock brokers them who were trading on behalf of their clients. As regards the cross deals, the Broker submitted that the cross deals were miniscule in quantity and that only four cross deals were carried out on different dates for different clients and that the said cross deals were “reversed transactions”. It was also contended that there is no evidence that while it was trading for its clients, it acted collusively with the other stock brokers with a view to carry on fraudulent and unfair trade practices or executed non-genuine trades for creating misleading appearance. On the date of hearing, Mr. Vinay Chauhan, Advocate represented the Broker and made submissions. The advocate inter alia submitted that the Enquiry Officer had exonerated the Broker from the charges of violating the PFUTP Regulations and various clauses of Code of Conduct except Clause A2. He further submitted that all the trades of the Broker were on behalf of the clients except for one trade for 10,000 shares. According to the advocate, there was a gradual rise in the share price from December 2004 onwards. It was also contended that the only basis for the finding is the trading pattern alone and th
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Source: SecMarx — sebi:WTM/KMA/ERO/IVD/286/07/2010. 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.