2023 (11) TMI 66 - AT - SEBI

Front running trading activity by certain entities - fraud for the purposes of the PFUTP Regulations - Offence under SEBI - investigation found that the appellant Manish Chaturvedi was the key person who perpetrated the front running activity with the aid and assistance of other noticees including his parents (Laxmi Chaturvedi and Manohar Chaturvedi) - HELD THAT - WTM and the AO correctly held that the trades of Anandilal Chanda and Anandilal Chanda HUF were based on the specific information obtained by Anandilal Chanda from Madhu Chanda, and more so in the absence of any plausible explanation by the appellants (the Chandas) of the peculiar and unusual manner in which their trades were executed ahead of the trades of the clients of Sharekhan and matched with the trades of the Sterling group. We further find that the nature, volume and value of trades of Anandilal Chanda and Anandilal Chanda HUF further corroborate the fact that they were carrying out front running activity in order to front run the clients of Sharekhan based on the information that was being passed on by Madhu Chanda to Anandilal Chanda. WTM order and the AO order have correctly held that due to the trading based on prior information of trades of the aforesaid 7 noticees and of the Sterling group, Madhu Chanda, Anandilal Chanda and Anandilal Chanda HUF defrauded investors in the securities market and caused loss to other investors / deprived the investors from profits, and made unlawful gains in their respective trading accounts. The front runners viz. Viraj Mercantile, Josh Trading, Pinky Auto, E-Ally, Shree Jaisal and Bhavesh Gadhavi respectively have also admitted their role in lending the trading accounts to Praveen Jain and in fact couched their submissions before this Hon'ble Tribunal as a 'mercy petition' whereby they have restricted their submissions only to reduction of penalty and period of debarment imposed against them. In this regard, it is submitted that lending of trading accounts is an offence of grave nature as the same may lead to misuse of trading accounts for activities in the securities market that may not be for genuine transactions as has happened in the present case and the same amounts to fraud for the purposes of the PFUTP Regulations.

Issues Involved:
1. Allegations of front-running trading activities by various entities.
2. Role of Manish Chaturvedi and other noticees in the front-running scheme.
3. SEBI's investigation and findings.
4. Orders of debarment, disgorgement, and penalties imposed by WTM and AO.
5. Appeals against the orders by various noticees.
6. Claims of procedural lapses and natural justice by appellants.
7. Admission of roles by certain appellants.
8. Previous restraint orders against Praveen Kumar Jain.

Summary:

Issue 1: Allegations of Front-Running Trading Activities
The judgment addresses ten appeals filed by 14 noticees against a common order dated December 18, 2020, passed by SEBI's Whole Time Member (WTM) and separate orders by the Adjudicating Officer (AO). The appeals were clubbed together as they emanated from a common issue of front-running trading activities.

Issue 2: Role of Manish Chaturvedi and Other Noticees
Manish Chaturvedi was identified as the key person perpetrating the front-running activity with the aid of other noticees, including his parents. Manish Chaturvedi was employed with the Sterling group and had access to vital trading information. He placed orders through trading accounts of various entities, facilitated by Madhu Chanda, a dealer at Sharekhan.

Issue 3: SEBI's Investigation and Findings
SEBI's investigation, based on reports from NSE, revealed that front-runners had front-run entities of the Sterling group. The investigation found that trading accounts of seven entities were used for front-running, leading to unfair gains. SEBI issued ex-parte ad-interim impounding orders and show cause notices, alleging violations of the SEBI Act and PFUTP Regulations, 2003.

Issue 4: Orders of Debarment, Disgorgement, and Penalties
The WTM and AO found the appellants guilty of front-running activities, leading to orders of debarment, disgorgement, and penalties. Various noticees were debarred for periods ranging from five to seven years and directed to disgorge unlawful gains. Penalties were imposed on different entities and individuals.

Issue 5: Appeals Against the Orders
The appellants contended against the orders on grounds of undue delay, lack of cross-examination, non-supply of investigation reports, and incorrect calculation of unlawful gains. However, the Tribunal found no merit in these contentions, noting that the appellants abstained from participating in the proceedings and did not raise objections before the WTM or AO.

Issue 6: Claims of Procedural Lapses and Natural Justice
The Tribunal rejected claims of procedural lapses and violations of natural justice, stating that the appellants had ample opportunities to participate in the proceedings but failed to do so. The delay in issuing the show cause notice was justified due to the complexity of collating data from multiple trading accounts.

Issue 7: Admission of Roles by Certain Appellants
Several appellants, including Praveen Kumar Jain and entities like Viraj Mercantile, Josh Trading, and E-Ally Consulting, admitted their roles in the front-running scheme. They sought leniency in penalties and periods of debarment, but the Tribunal upheld the severity of their actions.

Issue 8: Previous Restraint Orders Against Praveen Kumar Jain
Praveen Kumar Jain was found to have violated earlier restraint orders issued by SEBI in the matter of Pyramid Saimira Limited. He admitted to lending trading accounts for front-running activities and was penalized for contravening SEBI's directions.

Conclusion
The Tribunal dismissed all the appeals, finding overwhelming evidence of front-running activities and procedural fairness in SEBI's actions. The orders of debarment, disgorgement, and penalties were upheld, and the appeals were dismissed with no order as to costs.

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