Market regulator Securities and Exchange Board of India (SEBI) has confirmed its directions passed in an interim order on 13 January 2021 that had barred Hemant Ghai, former host of a show on CNBC Awaaz and two of his family members from recommending stocks. Mr Ghai used to host the “Stock 20-20” show on the channel, which CNBC Awaaz terminated after SEBI issued the interim order.
In its confirmatory order, Madhabi Puri Buch, whole-time member (WTM) of SEBI, says, “...the prima facie findings in the interim order dated 13 January 2021, that Hemant Ghai, Jaya Hemant Ghai (his wife) and Shyam Mohini Ghai (his mother) have prima facie indulged in unfair trade practice and have prima facie employed a fraudulent scheme to execute the impugned trades, resulting in the prima facie contravention of the provisions of section 12A (b) of the SEBI Act and regulations 3 (c) and (d) and 4(1) of the Unfair Trade Practices Relating to Securities Market) (PFUTP) Regulations, stand confirmed.”
“I note that a detailed investigation in the matter is in progress which may bring out additional roles of omission or commission, of the Ghais, if any, in detail, depending on the material and after considering the facts and veracity of their submissions. The findings in the extant order are prima facie findings in a matter under investigation,” the SEBI order says.
Hemant Ghai hosted various shows; ‘Stock 20-20’ (7:20am between Monday to Friday), ‘Munafe Ki Taiyari Pehla Sauda’ and ‘Kamai Ka Adda Stock 20-20’, which was described as a show that features recommendations on specific stocks to be bought and sold during the day.
It was observed that Jaya Hemant Ghai and Shyam Mohini Ghai have undertaken a large number of buy-today-sell-tomorrow (BTST) trades during the relevant period in synchronisation with the recommendations made in the show. Shares were bought on the previous day to the recommendations made on the stock 20-20 show and sold immediately on the recommendation day.
According to SEBI, the analysis of the trading pattern of Jaya Hemant Ghai and Shyam Mohini Ghai, for the period between 1 January 2019 and 31 May 2020, where the high correlation of the trades between them was observed with the recommendations furnished in the show Stock 20-20 aired on news channel CNBC Awaaz.
SEBI conducted a preliminary examination for the relevant period to look into possible violations of the SEBI Act and various regulations framed thereunder, including SEBI PFUTP Regulations by Jaya Hemant Ghai and Shyam Mohini Ghai.
According to the SEBI order, on 20 February 2021, the Ghais applied for settlement. However, the market regulator returned the settlement offer saying that the matter was under investigation.
During the hearing, the Ghais submitted that the recommendations made in each show’s episode during the relevant period had not been considered.
In this regard, Ms Puri Buch observed that the prima facie findings arrived at in the interim order are based on the preliminary examination of SEBI. She says, “In the said preliminary examination, the impugned pattern of trading pursuant to a prima facie scheme was repeated on 90 occasions aggregating to the gross traded value of over Rs100 crore and the said pattern was designed to take advantage of the price rise, following the buy recommendations given on the show. Each and every recommendation made on the show need not be examined to establish the charge of violations of PFUTP Regulations, so long as adequate evidence of a repeated trading pattern is prima facie demonstrated vis-à-vis the recommendation made on the show.”
In its submissions, the Ghais also contended that Jaya Ghai and Shyam Mohini Ghai opened trading accounts through an authorised person of Motilal Oswal Financial Services Ltd, namely MAS Consultancy, at Mehsana in Gujarat. MAS Consultancy also submitted that Jaya Hemant Ghai and Shyam Mohini Ghai had placed orders from 1 January 2019 to 30 March 2020 by visiting the branch.
However, the SEBI order pointed out that “...from the trade details of Jaya Hemant Ghai and Shyam Mohini Ghai trades in their trading accounts have been executed on successive days and sometimes on three out of five trading days. The approximate distance between Mumbai, where they reside and Mehsana, where the trading member is located, is about 600 km. Further, on the analysis of call data record (CDR) data, it was observed that during corresponding dates of trades in the year 2020, the noticees’ location was only in Mumbai and not in Mehsana in Gujarat. Therefore, considering the distance between Mumbai and Mehsana and the CDR data, the geographic location of the authorised person has become relevant in the present matter.”
The Ghais also contended that it is a common practice in India where one member in the family operates trading accounts of other family members. Ms Puri Buch, the WTM of SEBI, clarified that the case is not about one family member operating trading accounts of other family members.
“The interim order is on the basis of how pursuant to a prima facie scheme, trading by one family member in the account of another family member coupled with the advance information regarding recommendations has resulted in the prima facie fraudulent scheme,” she noted.
Citing the COVID pandemic and medical emergency, the Ghais had requested liquidation of mutual fund units worth Rs7.27 lakh. However, SEBI says the list of assets of the Ghais shows 17 bank accounts, and the Ghais have not submitted any details of money lying in these bank accounts. Further, it stated that the Ghais have four residential and two commercial properties, and they have not submitted any detail of these assets.
“Moreover, the bank accounts of the Ghais have been unfrozen as they have deposited the proceeds in an escrow account. Therefore, considering the noticees’ bank accounts are active and in the absence of any material particulars submitted by the noticees with respect to their bank accounts or their real estate properties, the request of the noticees to liquidate their mutual fund holdings, cannot be entertained at this stage,” SEBI says in the order.