The Securities and Exchange Board of India (SEBI) imposed a total fine of Rs1.75 crore on several entities for indulging in fraudulent trading in the scrip of Vakrangee Ltd. SEBI issued three separate but similarly worded orders which said that the entities have violated norms stipulated under the prohibition of fraudulent and unfair trade practices (PFUTP) regulations.
While as per two orders, a group of 22 connected entities and a group of 16 entities face a fine of Rs50 lakh each, the third order has imposed a fine of Rs75 lakh on the connected group of 27 entities. Most names of the entities in these groups are common and interconnected. These include Cybernetix Automation, Abhilasha Money Operations Pvt Ltd, Newtree Trading Company, Odathi Trading, Seahorse Mercantile Company, Bluepearl Trading Company, Cyber Netix Automation Pvt Ltd, and Highpoint Trading Company, among others. The fine has to be paid jointly and severally by them.
SEBI had ordered investigation for periods varying between January 2015 to September 2015, September 2015 to June 2016 and September 2016 to June 2017 to investigate the trading activities of the certain entities for violations of the provisions of the SEBI Act and SEBI’s PFUTP regulation.
During the investigation, SEBI observed that 34 entities, which had traded in the Vakrangee scrip during the investigation period were found to be connected with each other and also with the promoters of Vakrangee Capital Pvt Ltd and Vakrangee Holdings Pvt Ltd.
The connection or relation among the 34 suspected entities was based on common directorship, common address, common e-mail id, common contact number, shareholding in private limited companies, fund transactions, off market transfers, the market regulator says.
SEBI noted that during the investigation period, the suspected entities had purchased 33.94% and sold 42.82% of the market volume of the Vakrangee shares on BSE, and bought 20.33% and sold 26.14% of the market volume of Vakrangee shares on NSE.
SEBI’s investigations revealed that the connected entities traded in the scrip of Vakrangee and created a misleading appearance of trading in the scrip without any intention of change in ownership of the security, by entering synchronised trades at the relevant times.
Trades among the entities were not genuine and were executed with manipulative intent. They were a part of fraudulent scheme and the synchronized trades have created misleading appearance of trading in the scrip of the company, the market regulator said.
A synchronised trade is a trade where the buy and sell order quantity and rate were identical and orders for these transactions were placed within time gap of one minute.
SEBI said that such synchronised trades in pre-determined manner had an adverse impact on the fairness, integrity, and transparency in the securities market.
Amit Pradhan the adjudicating officer signing all three orders “It is noted from the foregoing findings that the trading pattern of the Noticees in terms of volume of synchronised trades, proximity of buy or sell and subsequent synchronised evidences the indulgence, clearly demonstrates the manipulative practice by the Noticees by using the stock exchange platform to carry out non-genuine trades with the aim to execute such trades for various manipulative purposes. Further, considering the matching of quantity, price and time and sale in the said transactions, it would be naïve to hold that such transactions were by mere coincidence.”
He further added “…There is not an iota of doubt that these 22 connected Noticees are involved in creation of artificial volumes in the scrip of the Company. Such fraudulent act as found in this case has a potential to defraud the investors and same cannot be in the interest of securities market. The law does not permit any allowance to be made for such fraudulent act as found in this case. The fraudulent act as found in this case, had clearly defeated the purposes of the Regulations i.e., investor protection and orderly development of the securities markets”.