Securities and Exchange Board of India (SEBI) on Monday barred two individuals from the securities markets and impounded illegal gain of Rs1.68 crore made by them from indulging in front-running trades. Those banned by SEBI are Gaurav Dedhia, who was employed as a chief dealer with IDBI Capital Markets and Securities Ltd, and his sister Kajal Ilesh Savla, according to an order passed by SEBI.
Front-running refers to an illegal practice in the stock market where an entity trades on the basis of advance information from a broker or analyst before the information has been made available to clients.
Apart from the securities market ban, Mr Dedhia has been restrained from associating himself with any intermediary registered with SEBI in any capacity till further orders. Following the commencement of investigation, Mr Dedhia has been kept under suspension by his broker employer, it added.
In its interim order, SEBI noted that Mr Dedhia has apparently abused his employment as a chief dealer with the broker by using the non-publicly available information about the impending orders of the big clients of the broker, for his personal use and further by taking advantage of such information, front-running trades were executed in an unfair manner to make unlawful gains in account of his sister. They eventually reversed those trades around the time of placement of those large orders of the big clients or sometimes even before that resulting in illegal profits of around Rs1.68 crore during the period of January 2019 to April 2021.
During its investigation, SEBI collected trading data including trades of Kajal Savla and the big clients of the broker, bank account statements, information and documents provided by the broker with respect to the employment of Mr Dedhia, details of IP addresses which appear to be used for the trades executed in the account of Kajal Savla as furnished by her stock broker and internet logs of the computer system of the broker used by the Mr Dedhia during the course of his employment.
The statements of Mr Dedhia and Ms Savla were also recorded on oath during the investigation. The information and evidences collected during the investigation conducted by SEBI prima facie indicate (i) that Mr Dedhia had transferred funds to the bank account of Ms Savla; (ii) that the Mr Dedhia has knowingly utilised the non-public prior information in his possession about the impending large orders to be placed by the big clients of the broker to his and his sister’s pecuniary advantage and has executed trades ahead of such impending orders,in the trading account of Ms Savla; (iii) that both have eventually reversed those trades around the time of placement of those large orders of the big clients or sometime even before that (second leg); resulting in the accrual of unlawful profits of around Rs1.68 crore to the benefit of Ms Savla during the period of 1 January 2019 to 10 April 2021 (investigation period); (iv) that all such trading activities appear to have been found to be executed by Mr Dedhia from the office of the broker itself, which means, he has executed these trades in his sister’s trading account while on duty during trading hours as a chief dealer of IDBI Capital Markets and Securities Ltd.
"The noticees have been able to make large amounts of profits in small trenches by their well-crafted manipulative scheme of front running the trades of Big Clients," SEBI said. The big clients of the broker included General Insurance Corporation, Ambuja Cement, Zee Entertainment Enterprises Ltd, Britannia Industries and Voltas. By indulging in such trades, they, prima facie, violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.
Accordingly, SEBI has restrained Mr Dedhia and his sister "from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders."
