Market regulator Securities and Exchange Board of India (SEBI) has taken strict action against a group of individuals and entities in a coordinated front-running scheme. The accused, including Murari Lal Sarda (noticee 1), Sushila Sarda (noticee 2), Vikas Sarda (noticee 3), Vikas Sarda Hindu united family (HUF) (notice 4), Preeti V Sarda (noticee 5), and Ashish Sarda (noticee 6), were ordered to disgorge Rs1.43 crore the illicit gains from their fraudulent activities and face penalties amounting to Rs45 lakh. They have also been barred from accessing securities markets for one to two years.
In the order, G Ramar, chief general manager (CGM) of SEBI, says, "I note that Murari Lal Sarda, Sushila Sarda, Vikas Sarda, Vikas Sarda HUF and Preeti Sarda were engaged in front running trades during the investigation period (IP), i.e. for one and half years and made a wrongful gain of Rs1.43 crore. Ashish Sarda facilitated the said front-running trades by acting as an information carrier and also received funds from the front runners for passing on the said non-public information, I find that necessary directions are required to be issued and appropriate penalty is required to be imposed on the noticees after considering the role played by them along with the amount of wrongful profit earned and the number of trades undertaken."
SEBI's investigation, initiated based on surveillance alerts and suspicious trading patterns, led to fines and market bans on those involved.
The investigation spanned from January 2022 to 30 June 2023. SEBI identified and scrutinised trades executed by entities like Parshvanath Finvest Pvt Ltd, Thar Share Brokers Pvt Ltd and Gangwal Commodities Pvt Ltd, collectively referred to as the "big clients." These big clients were targeted by the six from the Sarada family, who used confidential information about their trades to gain an unfair advantage.
SEBI probe uncovered that the noticees, including the Sardas, were closely connected through familial ties. Murari Sarda and Sushila Sarda were identified as husband and wife, and their son, Vikas Sarda, was involved in the illegal activities.
Additionally, Preeti Sarda and Vikas Sarda HUF were also implicated. The investigation revealed that the noticees systematically engaged in front-running an illegal practice where traders execute buy or sell orders based on prior knowledge of large orders to be placed by big clients.
The noticees used non-public trade information to place their trades ahead of the big client transactions, often resulting in significant profits. This practice was confirmed by analysing 557 instances in the cash segment and 215 in the equity derivatives segment. In many cases, the profits generated from these trades were substantial, amounting to over Rs1.43 crore.
The evidence against the noticees was not limited to trading patterns but was further bolstered by digital forensics, call records, and bank statements. Phone records showed frequent communication between the front-runners and Ashish Sarda, identified as the key ‘information carrier’. This individual confessed to sharing confidential trade information with family members and associates in exchange for a share of the profits.
The digital evidence also included WhatsApp messages and call recordings that clearly showed insider information transmission prior to placing trades. In addition, bank statements revealed a pattern of financial transactions where profits from the front-running scheme were transferred between the accused parties, further supporting the allegations.
SEBI's investigation detailed the systematic nature of the trading scheme. The front-runners employed specific trading patterns such as buy-buy-sell (BBS) and sell-sell-buy (SSB) sequences, which allowed them to profit from anticipated price movements due to the large trades of the big clients. The trades were concentrated in a limited number of securities, indicating a focused effort to exploit particular market conditions.
The accused individuals were found to have earned substantial profits by capitalising on inside information regarding the big clients' orders. For example, trades executed on 30 December 2022 and 10 January 2023, resulted in profits of Rs18,374 and Rs8,802, respectively, from stocks like OSWALAGRO and NMDC. These instances were just a few examples of a broader, well-coordinated operation aimed at exploiting non-public information for financial gain.
In response to the fraudulent activities, Ashish Sarda was penalised Rs20 lakh while Murari Sarda, Sushila Sarda, Vikas Sarda, Vikas Sarda HUF, Preeti Sarda has been penalised Rs5 lakh each.
