SEBI Hits Front-Runners With 5-Year Ban, Rs 90 Lakh Penalties

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AuthorRiya Kapoor|Published at:
SEBI Hits Front-Runners With 5-Year Ban, Rs 90 Lakh Penalties
Overview

India's market regulator, SEBI, has banned 12 entities for five years and levied Rs 90 lakh in penalties for a significant front-running scheme. The entities are also ordered to disgorge Rs 1.07 crore in unlawful gains, plus interest, to the Investor Protection and Education Fund. The investigation, triggered by an NSE report, found that confidential information about large client orders was leaked and used to trade ahead of them, violating market integrity rules.

SEBI Delivers Stiff Penalties in Front-Running Case

Securities and Exchange Board of India (SEBI) has banned 12 entities from the securities market for five years, imposing total penalties of Rs 90 lakh in a major front-running case. The regulator also mandated the disgorgement of Rs 1.07 crore in illicit gains, along with 12% annual interest, to be paid within 45 days.

Unraveling the Scheme

The probe revealed that a "Big client," identified as Paresh N Bhagat, Chairman and Managing Director of Mangal Keshav Financial Services, shared non-public information (NPI) about his impending large orders with dealers Ashish S Parekh and Rajesh Joshi. Parekh and Joshi subsequently leaked this confidential data to Nagendra S Dubey and Chirag Atul Pithadia.

Trades Executed Illegally

Dubey and Pithadia then used this NPI to place trades in the accounts of connected entities, often referred to as "front-runners," before the Big client's orders could be executed. SEBI's whole-time member Kamlesh C Varshney stated in the final order that these trades were clearly designed to front-run the Big client's impending orders, involving collusion between the front-runners and information carriers.

Regulatory Action and Violations

The front-runners implicated include Dipa Ashish Parekh, Kashmira Joshi, Nikhil Hirachand Jain, Nikhil Hirachand Jain HUF, Alpesh Hirachand Jain HUF, Nagendra S Dubey HUF, and Late Sushma Nagendra Dubey through her legal heirs Jagruti Atul Pithadia and Sahil Atul Pithadia. SEBI deemed the trading based on NPI as fraudulent, manipulative, and an unfair trade practice, directly violating the Prohibition of Fraudulent and Manipulative Practices (PFUTP) regulations.

Sanctions and Timeline

All implicated entities (Noticees Nos 1-13) are restrained from dealing in securities for five years from December 26, 2022, the date of SEBI's interim order. Kashmira Joshi and Rajesh Joshi received the same five-year trading prohibition. Ashish Parekh, Nagendra Dubey, and Chirag Pithadia are barred from associating with SEBI-registered intermediaries or companies for four years. The investigation originated from a preliminary report by the National Stock Exchange (NSE) on suspected front-running activities.

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