sebi:WTM/TCN/ID3/56/Oct/2008

SEBI · SEBI · Dr. T. C. Nair, Whole Time Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Noticee restrained from accessing the securities market and prohibited from buying, selling or otherwise dealing or associating with the securities market for a period of one year.

Provisions invoked

• s. 19
• s. 11C

Regulations

• Reg. 11
• Reg. 3
• Reg. 13
• Reg. 199
• Reg. 200
• Reg. 11A
• Reg. 22

Parties

• M/s. K K Fintrade Ltd.

Holding

The noticee, M/s. K K Fintrade Ltd., was found to have violated Regulations 3, 4(a), (b), (c), (d) and 6(a) of the PFUTP Regulations, 1995 read with Regulation 13 of the PFUTP Regulations, 2003, by engaging in fraudulent and unfair trade practices in the scrips of PSIL and HCL, and was restrained from accessing the securities market for a period of one year.

Full text

Page 2 of 17 a) It was observed that all the buy/sell orders were placed by M/s Jaisharefin Ltd for different clients. Generally, the orders of purchases and sales between Sunil Shares & Stock Pvt. Ltd. and K. K. FIntrade Ltd were punched from the same terminal of M/s Jaisharefin Ltd. b) The Inspection Report of Jaisharefin Ltd had stated that: a. Almost similar Modus Operandi has been adopted for trading in HCL and PSIL b. Abnormal trades in scrips like HCL and PSIL were observed between the period 16.10.2002-05.08.2003. c. During the entire period, all the buy/sell orders were placed by the broker, M/s Jaisharefin Ltd for different clients. d. Generally, the orders of purchases and sales were punched from the same terminal of M/s Jaisharefin Ltd between Sunil Shares & Stock Pvt. Ltd. and K. K. Fintrade Ltd. e. The broker has been issuing contract notes for a large number of unreported internal trades in scrips like Reliance, Satyam, Tisco, Zee TV, SBI and L & T. f. Such abnormal trades may be to accommodate clients for fake capital gains bills and to allow badla trading among clients. g. The broker did not collect upfront margin and did not make payments to clients within prescribed time limit. h. Deficiencies were found in maintenance of client agreement and client registration forms. i. Contract notes did not bear preprinted serial numbers and were not acknowledged by the clients. Even brokerage was not charged on all internal trades. j. The broker did not mention unique

Page 3 of 17 k. The broker opened several fictitious client accounts for accommodating fake capital gain bills. l. The broker entered into proprietor trading under different client codes. m. The broker was also non-supportive in providing the information. When the broker came to know that his irregularities has been noticed he turned out non co-operative and snatched away some of the working papers and ledger provided to the inspection team for inspection. n. On several reminders and telephonic calls, the broker had informed that he is in the process of removing all internal trade transactions and such fake transactions and as soon as he finishes the same, he shall provide them with fresh information.

Page 4 of 17 Neptune Securities Pvt Ltd. (Neptune) and Aagam Securities Pvt Ltd. (Aagam) were the major traders in the scrip contributing more than 80% of the volumes during the period of investigation. The member wise data of the top three brokers submitted by ASE were also as follows: Member Total Value of the Member % Ratnakar Finstock Pvt Ltd 3704102 53.56 Neptune Securities Pvt Ltd 1638640 23.69 Aagam Securities Pvt Ltd 375129 5.42 Total 5717871 82.67 The abnormal trading pattern in the scrip was collated as under, in accordance with the trade log submitted by ASE and the subsequent information received from the brokers/clients: Clo sin g pric e / Date Seller Buyer Quantity Nature of trade

Source: SecMarx — sebi:WTM/TCN/ID3/56/Oct/2008. 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.