Sebi on Tuesday refused to lift the capital market ban imposed on six individuals for 'front running' the trades of India Infoline Group (IIFL Group).
In the case, a dealer of India Infoline Group and his connected entities used "mule" accounts.
"At this stage there is no reason to interfere with the prima facie findings of the interim order," Sebi noted.
In its confirmatory order, Sebi said the prima facie findings in the interim order against the individuals who acted in contravention to the provisions of Sebi's PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) stand confirmed.
Accordingly, the regulator has confirmed the directions of the interim order dated October 1, 2020.
Sebi, through the interim order, barred six individuals from "buying, selling or dealing in the securities market or associating themselves with the securities market, either directly or indirectly, in any manner whatsoever till further directions".
It was also observed that these individuals were front running the trades of IIFL Asset Management and several alternative investment fund schemes under IIFL Wealth Management, part of the India Infoline Group.
The regulator had examined KYC details, call data records, bank statements of the suspected individuals to probe relationships between various individuals under its scanner in the case, after Sebi's own internal surveillance system generated front running alerts against Virendra Pratap Singh and Neha Virendra Singh between December 2019 and March 2020.
In its interim order, Sebi had said the trading pattern showed deployment of BBS (Buy-Buy-Sell) or SSB (Sell-Sell-Buy) strategies.
These are two typical modes of front running under which front runners place buy or sell orders just before the final buy or sell order of the big client and then place sell or buy orders, respectively, after the price of the stock has risen or fallen following execution of the final order by the client.
Big client here refers to IIFL Asset Management and alternative investment fund schemes.
Sebi had found that Santosh Brijraj Singh, a dealer of IIFL Group entities, after becoming privy to the non-public information of the impending orders of the big clients, communicated the same, directly or indirectly, to his connected entity Adil Gulam Suthar.
Subsequently, both of them used the mule account sets to carry out the front running trades. They earned significant profits to the tune of Rs 58 lakh while front running the trades.
It had further said Santosh B Singh and Adil Gulam Suthar placed orders from the trading accounts of the mule account holders -- Virendra Pratap Singh, Neha Virendra Singh, Gulammohammed Gulamabbas Shaikh and Mohammedidrish A Shaikh.
Once the proceeds were credited into the bank accounts of the four front runners by Santosh B Singh, Adil Gulam Suthar withdraw the same in cash from an ATM within a few days from the credit, Sebi had said in its 66-page order.
Following the bank account statements of these entities, it was found that cash deposits were made in the front running bank accounts to undertake the front running activity.
Subsequently, the proceeds generated from such activity were withdrawn in cash through ATMs in order to circumvent the audit trail.
By indulging in such activities, they violated the provisions of PFUTP norms, Sebi had said.
