Market regulator Securities and Exchange Board of India (SEBI) has barred six entities, including stockbroker Madhav Stock Vision Pvt Ltd (MSVPL), from the market for one year after finding them guilty of front-running trades of Life Insurance Corporation of India (LIC).
In
its order, Amarjeet Singh, whole-time member (WTM) of SEBI, said, "...considering both the roles of the individuals and the company, MSVPL, joint and several liability was imposed by the SCN, which, in my view, is justified and cannot operate as double liability as contended by the noticees. If MSVPL’s contention is accepted and the corporate entity is permitted to evade its liability for its proprietary trades merely because the directors and individuals associated with it have been identified, the same would defeat the regulatory framework and aggravate the misuse of proprietary accounts as instruments of market abuse.”
SEBI has also directed the noticees to jointly and severally disgorge unlawful gains of ₹2.51 crore, along with 12% annual interest from 1 December 2023 until the date of payment. In addition, the regulator imposed a total penalty of ₹30 lakh, levying ₹5 lakh on each of the six noticees.
The other entities against whom action has been taken are; Jyotiswaroop Nandkishore Purohit, Pankit Bhagwati Jhaveri, Rajesh Bhagwati Jhaveri, Ajay Sampatraj Jain and Rajkumar Prabhu Damani. Mr Jain and Mr Damani were both directors of MSVPL. SEBI concluded that the group had engaged in a coordinated front-running scheme by misusing non-public information (NPI) relating to large institutional trades placed by LIC.
According to SEBI’s order, the investigation covered the period from 1 April 2020 to 1 December 2023. The regulator found that MSVPL, a SEBI-registered stockbroker, executed proprietary trades ahead of LIC's orders after receiving confidential information about impending transactions. The investigation began after SEBI's internal surveillance system detected suspicious trading patterns.
SEBI said the scheme involved three distinct groups. MSVPL acted as the front-runner and profit-maker, while Jyotiswaroop Purohit and Pankit Jhaveri, who handled LIC’s orders at an empanelled broker, allegedly accessed confidential order information due to their proximity to the dealing desks of other brokers of LIC.
This information was allegedly passed to Rajesh Jhaveri and Mr Jain, enabling MSVPL to place proprietary trades ahead of LIC's transactions. Mr Damani and Mr Jain, were found to have facilitated the use of MSVPL's trading terminals and shared the unlawful gains through related entities.
During the investigation, SEBI relied on multiple pieces of evidence, including call data records, trading pattern analysis, know-your-customer (KYC) documents, bank account statements, telephone conversations, and the movement of profits among related entities. The regulator also found evidence that confidential order information was shared through telephone calls and messaging platforms before the execution of LIC's trades.
While the noticees admitted that certain cash-market trades could be construed as front-running, they denied SEBI's allegations relating to derivatives trades and sought exclusion of gains attributed to the futures and options segment. They also argued that they had cooperated with the investigation, voluntarily deposited the alleged unlawful gains in an interest-bearing account and requested leniency in the matter.
The regulator concluded that the noticees had unfairly benefited from non-public information relating to a large institutional investor's trades, thereby violating the provisions of the SEBI Act and the PFUTP Regulations.
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