Stock Manipulation: SEBI Slaps Rs87 Lakh Fine on 15 for Circular Trading in Kapil Raj Finance Scrip
Moneylife Digital Team 19 June 2023
Market regulator Securities Exchange Board of India (SEBI) has imposed a penalty of Rs87 lakh on 15 for manipulating the price of Kapil Raj Finance Ltd (KRFL) scrip. 
In an order, G Ramar, adjudicating officer (A0) of SEBI says, "...the investors have been induced by the misleading appearance of trading created by the noticees (the 15 entities) by carrying out circular trades without change of ownership showing that a fraud has been committed upon the investors and shareholders of the securities which are serious in nature, thus, attract and deserve considerable penalties. The modus operandi adopted by the noticees is detrimental to the smooth functioning of the securities market and hence, deserves to be viewed seriously."
SEBI imposed a fine of Rs8 lakh each on Divyaben Hiteshbhai Gangani and Pardhi Dhirubhai Khanabhai and Rs7 lakh each on Bhavin Natwarlal Panchal, Deepak Parsharam Salvi, and Ravikumar Vinodbhai Parmar.
It also levied a fine of Rs5 lakh 10 others, including Nikhil Kiritbhai Panchal, Naileshkumar Ganeshbhai Prajapati, Jay Kamleshbhai Bhavsar, Krunal Bhupendrabhai Makwana, Nilesh Kishanbhai Pandya, Chandakant Sevantilal Thakkar, Dashrathbhai Maheshbhai Vada, Manjulaben Bhaveshkumar Rangee, Bhumikaben Makvana, and Dineshbhai Vaghela.
ICICI Securities Ltd had filed a complaint with SEBI alleging certain SMSs were being circulated as stock tips, giving an impression as if the sender of such SMSs was ICICI Securities by using a similar-sounding sender ID or website name.
After receiving the complaint, SEBI investigated the matter and found that Kapil Raj Finance had made a preferential allotment of 49.40 lakh shares in May 2014, each to 49 entities. Out of 49 entities, 15 preferential allottees had sold 13.87 lakh shares at an average price of Rs25 and made a profit of Rs2.09 crore through such sales during the SMS circulation period.
During the period when the SMSes was sent, the price of the scrip moved to Rs21.20 on 20 April 2018 from Rs31.80 on 24 January 2018, SEBI says.
In the order, the SEBI AO observed, "I note that the 15 entities engaged in circular trading without change of beneficial ownership, contributing to nearly 80% of circular trading volume and thereby creating 22.2% of trading volume, which was non-genuine and artificial, which created a misleading appearance of trading. By creating artificial volumes, they lured 3,538 new retail investors into trading in the scrip".
As per the SEBI investigation report, 30 entities had entered into 235 instances of circular trades and traded 24.28 lakh shares. Circular trading occurred for 21 days out of 58 days when trading took place during the investigation period (IP), which created 28.15% of the market volume for the said 21 days, it added.
Finding the 15 entities guilty in indulging in price manipulation and circular trading, SEBI imposed a total penalty of Rs87 lakh on them.
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