SEBI Asks Alexander Stamps and Coin's Director To Disgorge over Rs1.18 Crore Earned from Contra Trade
Moneylife Digital Team 07 February 2024
Market regulator Securities and Exchange Board of India (SEBI) has asked Anirudh Sethi, director and designated person of Alexander Stamps and Coin Ltd (erstwhile Rudraksh Cap Tech Ltd) (ASCL), to disgorge Rs1.18 crore earned by him as profit from contra trades. SEBI asked him to remit the money to the investor protection and education fund (IPEF) administered by the market regulator.   
 
In an order last week, Amarjeet Singh, whole-time member (WTM) of SEBI, says, "The obligation of Mr Sethi to disgorge the profits made from contra trades flows from Clause 10 of Schedule read with Regulation 9(1) of the Prohibition of Insider Trading (PIT) Regulations. In the present case, since the allegation of making profits from contra trades has been established, it follows that the profits be disgorged for remittance to the IPEF administered by SEBI. In the present case, the amount of profit made by the Noticee from contra trades has been quantified to be Rs1,18,14,031.39."
 
As per PIT regulations, contra trades are those trades or transactions that involve buying or selling the shares of the company and then, within the time specified, trading or transacting in an opposite transaction involving selling or buying of the shares purchased or sold. 
 
SEBI investigated the trading activities of certain entities in the scrip of Alexander Stamps and Coin. The investigation was carried out for two periods, from 18 March 2016 to 14 October 2016 (IP1) and from 24 May 2017 to 17 July 2017 (IP2). SEBI observed that Mr Sethi, director, and a designated person of ASCL, had executed contra trades during IP2. The market regulator then issued a show-cause notice (SCN) to Mr Sethi.
 
During the hearing, Mr Sethi submitted that since the PIT regulations require the company's compliance officer to administer the code of conduct, SEBI cannot assume that power itself and pass an order of disgorgement against him. 
 
However, SEBI says, "If the argument of Mr Sethi that only the compliance officer of the company has the power to ensure compliance with the relevant provision of the code of conduct is accepted, the same would render the provisions unenforceable since Mr Sethi has already disregarded the communications of the company and its compliance officer.”
 
In respect of Mr Sethi's contention that the SCN has arbitrarily split the period of alleged contra trades into two periods and considered only the profits for determining the disgorgement amount, SEBI observed that while the investigation based on the first BSE report was on, it received another report from BSE. "The two investigation periods could have resulted in two separate investigations, and for the reason that both the references from BSE were related to one person and one company, a common investigation report was prepared. Thus, no arbitrary splitting of the investigation period has been done in the present case." 
 
SEBI further outlined that Mr Sethi, at no stage, has denied that he indulged in contra trades or objected to the veracity of the trades.  
 
Regarding Mr Sethi's argument that SEBI has acquitted the individual in these cases on charges of contra trades, the market regulator noted that, in all these cases, the individuals had disgorged the contra trades profits, and the penalty was not imposed upon them. "These cases are clearly distinguishable from the instant case and proceedings wherein Mr Sethi has not disgorged the profits made through the contra trades."
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