sebi:WTM/PS/31/IVD/ID-3/DEC/09
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Facts / Headnote
Proceedings disposed of without directions; noticee held guilty of violating Code of Conduct for Stock Brokers but no penalty imposed as certificate of registration was already cancelled and noticee is a defaulter not in broking business.
Provisions invoked
- s. 11
Regulations
- Reg. 7
- Reg. 11
Parties
- EL Dorado Guarantee Ltd.
Holding
The noticee was held guilty of violating the Code of Conduct for Stock Brokers under Clause A (1), (2), (3) and (4) of Schedule II read with Regulation 7 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, for creating artificial volumes and influencing prices in the scrip of Baffin while trading on behalf of its client Paragon. However, the proceedings were disposed of without directions because the noticee's certificate of registration had already been cancelled by SEBI on June 12, 2003.
Full text
Page 2 of 7 3. On completion of the investigation, SEBI issued Show Cause Notice dated December 13, 2006 (hereinafter referred to as ‘SCN’) to EL Dorado Guarantee Ltd. (hereinafter referred to as ‘noticee’) under Section 11, 11B and 11(4) of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’) read with Regulation 11 of PFUTP Regulations. The SCN alleged that noticee was observed to have executed trades on behalf Paragon Investments Pvt. Ltd. (hereinafter referred to as Paragon). The noticee was found to have placed orders for Paragon in such a manner that the orders were matched with the orders of the counter party broker Sanghvi Brothers Brokerage Ltd. (hereinafter referred to as ‘counter party broker’) who was also trading for Paragon. The trading of the noticee on behalf of its client had created artificial volume and also influenced the prices of the scrip of Baffin. These acts of the noticee were found to be in violation of Regulations 7 read with Clause A (1), (2), (3), (4) and (5) of the Code of Conduct specified under Schedule II of the SEBI (Stock Brokers and Sub-Broker) Regulation, 1992 (hereinafter referred to as ‘Broker Regulations’). Accordingly, it called upon the noticee to show cause as to why suitable directions under Section 11, 11B and 11(4) of SEBI Act read with Regulation 11 of PFUTP Regulations including restraining it from accessing the capital market and prohibiting from buying, selling or dealing in securities in a
Page 3 of 7 5. I have carefully considered the SCN, reply of the noticee and material available on record. It is observed that as the noticee had been declared as a defaulter by BSE and National Stock Exchange (hereinafter referred to as ‘NSE’), SEBI initiated proceedings under Section 11, 11B and 11(4) of SEBI Act, as against it. The main contentions raised by the noticee in brief are: i. Mr. Bimal Gandhi, Promoter and Managing Director, committed suicide, while the other directors of the company for the relevant period had resigned. ii. There was a substantial mismatch and liabilities of noticee at over Rs.60 crores. iii. Noticee has been declared defaulter by both BSE and NSE. iv. More than one hundred employees were retrenched. Lots of documents/ records were destroyed/ missing and are not traceable. v. Present management neither has knowledge of dealing with Paragon nor a party to such dealings. vi. They have no records of any dealing with either Baffin, counterparty broker or Paragon. vii. The dates mentioned in SCN are the dates prior to the date of joining of the present directors i.e. June 15, 2001. viii. Present directors/ management were not aware of mentioned dealings in SCN.
Page 4 of 7 a. I observe that the noticee while acting on behalf of its client, Paragon had executed trades in the scrip of Baffin. Paragon was acting as ultimate client for noticee as well as for the counter party broker by placing buy orders through one broker and sale orders through another broker. It is noted that such trades were in circular manner which gives rise to reversal of trades without any change in beneficial ownership.
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Source: SecMarx — sebi:WTM/PS/31/IVD/ID-3/DEC/09. 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.