1.1 SEBI has conducted an examination into recommendations given by Mr.Mathew Easow on the website www.moneycontrol.com and his dealings in the shares of the companies recommended by him and issued a cease and desist dated January 19, 2006 against him in this regard.
1.2 It was also stated that Mr. Mathew Easow is associated with Mathew Easow Fiscal Services Ltd., which is a SEBI registered broker with OTCEI having registration number INB200866030 and Mathew Easow Financial Services which is a SEBI registered sub-broker (registration number INS231097713) with Eureka Stock & Share Broking Services Ltd, member of NSE.
1.3 The following recommendations were given by Mr. Mathew Easow on the website of www.moneycontrol.com.
1.4 The trade data gathered from the exchanges revealed that Mr. Mathew Easow dealt in the shares of the above mentioned companies through his associate companies i.e. Mathew Easow Research Securities Limited (MER) and Mathew Easow Fiscal Services Limited (MEF). The trade details gathered are given below:
* Dealing in the shares prior to the date of recommendation
1.5 The above instances indicated that Mr. Mathew Easow took an opposite trading position to what he recommended to the investors at large and also started selling the stock after giving an opposite advice to the market.
1.6 It was therefore alleged that Mr. Mathew Easow attempted to mislead investors through investment recommendations and purveying the said information to the public which himself did not appear to believe to be true and therefore violated the Regulations 3(d) and 4(1) of SEBI (Prohibition of Fraudulent arid Unfair Trade Practices Relating to Securities Market) Regulations, 2003 read with Regulations 2(c) and 4(2)(f) of the said Regulations.
2. SHOW CAUSE NOTICE, REPLY AND HEARING
2.1 Pursuant to Whole Time Member's Order dated February 13, 2006, a Show Cause Notice No.ISD/ADJ/BR/65841/2006 dated April 28, 2006 containing the facts / allegations of violations, as brought out above, was issued against Mr. Mathew Easow asking him to show cause why an inquiry against him should not be held in respect of the alleged contravention of the abovementioned SEBI Regulations and as to why a penalty under Section 15 HA of Securities and Exchange Board of India Act, 1992 shall not be imposed on him.
Mr. Mathew Easow had submitted his reply to the show cause
notice vide his letter dated
2.3 Mr. Mathew Easow has made the following submissions in his above mentioned reply to the show cause notice and written submissions:
Mathew Easow Fiscal Limited is a trading company whose
income is generated from trading in securities.
It is also a dealer of OTCEI and a stock broker registered with
SEBI. However ME Fiscal has not been
functioning as a stockbroker and a dealer on OTCEI broker since the inception
of its dealership, Mathew Easow holds approx 79% of the shares of ME Fiscal.
Mr.Mathew Easow is also a committee member of the Calcutta Chamber of Commerce. He is regularly interviewed on CNBC, BBC,
NDTV, Sahara TV and Reuters (
2.5 SEBI’s order dated 19/01/2006 and the present proceedings are based on an investigation by SEBI and not certain recommendations made by Mathew Easow on the website www.moneycontrol.com and that the allegation and findings in both the proceedings are substantially the same. We further submit that the initiation of two parallel proceedings by SEBI in the same matter wherein penalty is sought to be imposed on us for the sale alleged violation is against the prohibition of double jeopardy laid down in Article 20 of the Constitution of India and therefore, we request that the present proceedings may be kept in abeyance until conclusion of the proceedings before the hon’ble Whole Time Member of SEBI.
In the email dated
2.7 MER purchased 13500 shares of Albert @ 140/- and sold only 2700 on 1st September and 1460 on 6th September and 200 on 9th September and 3789 on 14th of September. Here again MER had taken a pure trading position. As on 1st September, 2005 Albert David comprised 8.40% of the total holding of MER and as on 15th September, 2005 Albert David comprised 5.69% of the total holding of MER (i.e. the closing stock of Albert David as on I5th September, 2005 was 6441 shares). Thus it is seen that out of total stock of Albert David of 14590 shares, as part of short term trading as and when resistance targets were met, 8232 shares were sold from 1st September to 19th September, 2005 and as on 30.09.2005 the closing stock of Albert David was 6358 . If we did not believe in the target of Rs.200 then we would have sold the entire 14590 shares on 01.09.2005 itself when the price was Rs.150 and the total volume traded was 191165. Therefore, it is wrong to state that the action was predictable on the gaining from the impact of the research
In the email dated
We submit that MER bought 54,500 shares of Kalpana Industries
during September 2 and 6-9 as a short term trading strategy and then, because
the prices had moved up, sold 21,356 (almost 40%) shares on September 12,
2005. The intention of MER was entirely
to book profits on short term trading and not to take advantage of any
appreciation in the scrip as a result of the recommendation made by Mr. Mathew
Easow. If the intention was to take an undue advantage, then MER would not have
sold 21,356 shares prior to the recommendation, rather it would have waited and
sold the entire shareholding after there was a rise in price. Further, when MER sold the shares, the
average price was around Rs.73/- whereas after the share was recommended, on
September 13, 2005 the price rose to Rs.80.35(on which day 13500 shares were
sold) and on 14th September 2005 the share closed at a price of
Rs.85.75 (on which day 9900 shares were sold).
The share touched Rs.88.40 on
In the email dated
Mr.Mathew Easow recommended the CESC in
In the email dated
In case of MEF, the company was holding 4400 shares of CESC
In the email dated
It is to be noted that as on
2.16 From the above, it may be seen that the recommendations were made after significant research in to the industry, the background and performance of the company and considering the trend in the industry and the economy. Therefore, the recommendations cannot be said as being made with an intention to mislead investors or to lure unsuspecting investors into making unfavorable investment decisions.
2.17 The trades of MER and MEF were done in the normal course of their business and would have been carried out even without such recommendations. This would be clear from the fact that these entities have traded in the four scrips prior to and after the recommendations. Moreover, the said entities have not traded in many of the scrips in respect of which Mathew Easow has made recommendations.
2.18 In view of the above, we submit that it is not correct to say that :
(a) MER and MEF took an opposite trading position to what Mathew Easow recommended. While it may have been a coincidence that on certain days and in a few of the scrips in respect of which Mathew Easow made recommendations, MER and MEF took opposite positions, these were never intentionally done nor were they regular in nature. In fact, this demonstrates that the comments were academic in nature and not linked to the intent behind the day-to-day trading.
(b) MER and MEF did not always sell the shares in which Mathew Easow gave buy recommendations. As we have submitted before, the trading by the entities and the recommendations by Mathew Easow were not related to each other at all.
(c) The recommendations of Mathew Easow have not been borne out by the movements in prices of the scrips. We submit that while the prediction of price movements in securities is not an exact science, it would be erroneous to say that none of the predictions regarding price movements have come true. In this regard, Mr. Mathew Easow submitted a comparison of the predictions made by them over the past one year and the prices as they stood at the end of the period predicted.
2.19 It would be unfair to allege that Mathew Easow has been purveying information which he does not believe to be true because the recommendations are made by him after due analysis and research based on consideration of sound technical and fundamental grounds. The methodology adopted by Mathew Easow in making suggestions regarding price movements and thereby in making recommendations regarding buy/sell is based on Techno-Fundamental analysis. Techno-Fundamental analysis is an approach whereby fundamentally sound scrips are selected for long term investment & technical tools are used for fine tuning short term & intraday trading on the basis of supports - S1, S2, S3, 54 etc. which operate as stop losses depending on the risk appetite of individual investors and resistances – R1, R2, R3, R4 etc. which operate as profit booking levels for individual investors on the basis of risk appetite.
2.20 We humbly submit that Mathew Easow has not made any recommendation which he did not believe to be true. We submit that all the recommendations and suggestions made by him were made after due analysis and with great conviction. We further submit that the said recommendations cannot be considered as false and misleading merely because a few of the predictions regarding prices did not come true and because trading companies in which he was a director sold securities in the normal course of business. Therefore, we deny that we have been purveying information that we do not believe to be true and submit that we have not violated regulation 4 (2) (f) of the FUTP Regulations or any other law in force.
2.21 Therefore, we deny that we have been purveying information that we do not believe to be true and submit that we have not violated regulation 3(d) of the FUTP Regulation. In light of our submissions hereinabove, we submit that we have not indulged in any trade practice that can be termed as fraudulent or unfair and therefore the penalty contemplated under section 15HA of the SEBI Act, 1992 should not be imposed on us.
3. ISSUES FOR CONSIDERATION
3.1 The issues for consideration is
(i) whether this adjudication proceedings is a “Double Jeopardy” and
(ii) whether Mr. Mathew Easow attempted to mislead investors through investment recommendations and purveying the said information to the public which himself did not appear to believe to be true and therefore violated the Regulations 3(d) and 4(1) of SEBI (Prohibition of Fraudulent arid Unfair Trade Practices Relating to Securities Market) Regulations, 2003 read with Regulations 2(c) and 4(2)(f) of the said Regulations.
4. CONSIDERATION OF EVIDENCE AND FINDINGS
4.1 I find that SEBI vide order dated January 19, 2006 directed Mr. Mathew Easow to cease and desist from giving any recommendations about any investment in the securities market in any public media which amounts to violation of regulation 4(2)(f) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. Even otherwise also no person is expected to violate the said Regulations and SEBI has not levied any penalty and only directed Mr. Mathew Easow to cease and desist from giving any recommendations about any investment in the securities market in any public media if it is in violation of the said Regulations. In view of above, the adjudication proceedings is not a “Double Jeopardy”.
4.2 The allegation of Mr.Mathew Easow’s attempt to mislead investors through investment recommendations and purveying the said information to the public which himself did not appear to believe to be true are based on his recommendation and trading behavior on the following four scrips during the month of September 2005: (1) Albert David (2) Kalpana Industries (3) Ahlcon Parent and (4) CESC.
4.3 The relevant recommendations submitted by Mr.Mathew Easow and trade details in the said scrips are given below:
(1) Albert David
(2) Kalpana industries
(3) Ahlcon Parentals
4.4 It is observed that Mr.Mathew Easow had given “buy” recommendations on all the above four scrips in the month of September 2005 and he himself sold the said shares on the same month contrary to his recommendations.
4.5 Mr.Mathew Easow stated that in addition to short term target and 6 months target he had also given resistance levels for the said scrips and he had sold the shares whenever the resistance levels were reached. Further, he had stock of certain quantity of shares of all the four scrips without selling at the end of September 2005, since he had faith in the targets he had recommended for the said four scrips. He had also submitted the detailed research/ technical rationale which formed the basis for his “buy” recommendation on the said four scrips.
It was observed that the Resistance levels given by Mr.Mathew Easow in all the four
scrips were meant for “intraday trades” and not for the investors.
Further, the resistance level and support level given were generally 3-4% of
the previous day’s closing price. For example, in the case of ‘Albert David’,
Mr. Mathew Easow’s submission that he
had believed in his recommendations and that’s why he kept certain stock of
shares without selling at the end of September 2005 is not convincing since he
had sold large quantity of shares in September 2005 than the quantity of shares
held at the end of September 2005 except in the scrip of CESC. The quantity of
shares sold after his ‘buy’ recommendations and stock held in three scrips as
4.8 In the case of CESC, despite MEF had hedged its holding of 4400 shares of the CESC on 01/09/05 by selling the same in the F&O market (indicating the negative outlook on the stock), he gave ‘buy’ recommendation to the investors for three trading days namely 14/09/05, 15/09/05 & 19/09/05. It is also observed from the trade details submitted by Mr.Mathew Easow that MEF had made a profit of Rs.30,778/- in the F&O market due to the price fall in the month of September 2005.
It was also observed that in all the above four scrips, Mr.Mathew Easow had made purchases
prior to his ‘buy’ recommendations and had sold in all the four scrips
immediately after his ‘buy’ recommendations in most of the times. In the scrip
of Ahlcon, on two occasions his sales alone had constituted more than 50% of BSE’s turnover in that scrip. Except a single buy
transaction of 1500 shares of Ahlcon on
4.10 Mr.Mathew Easow submitted that all the recommendations and suggestions made by him were made after due analysis and with great conviction and the said recommendations cannot be considered as false and misleading merely because a few of the predictions regarding prices did not come true and because trading companies in which he was a director sold securities in the normal course of business. He also submitted that the said entities have not traded in many of the scrips in respect of which Mathew Easow had made recommendations and SEBI mentioned about only 4 scrips out of 9 scrips he had recommended in the month of September 2005. I observe that SEBI has not made any allegation regarding the predicted prices did not come true but referred the instances wherein Mr.Mathew Easow seems to misled investors through investment recommendations and purveying the said information to the public which himself did not appear to believe to be true.
4.11 Mr.Mathew Easow’s submission that the trades of MER and MEF were done in the normal course of their business and would have been carried out even without such recommendations is not convincing since he himself contradicting the said submission in his reply on all the four scrips that he/they believed his ‘buy’ recommendations and therefore MER and MEF had not sold all these shares when the prices were high and kept certain quantity of shares in all the said four scrips unsold as on September 30, 2005.
4.12 In view of the forgoing, I find that Mr.Mathew Easow had caused to publish the information which he does not believe to be true prior to or in the course of dealing in securities and suggested as to a fact which himself does not believe it to be true and thereby violated the Regulations 3(d) and 4(1) of SEBI (Prohibition of Fraudulent arid Unfair Trade Practices Relating to Securities Market) Regulations, 2003 read with Regulations 2(c)(2) and 4(2)(f) of the said Regulations. Therefore I find that Mr.Mathew Easow is liable to imposing of monetary penalty as per the Section 15HA of Securities and Exchange Board of India Act, 1992.
4.13 To determine the quantum of penalty under Section 15HA, I considered the following factors as provided in the section 15J of SEBI Act, 1992 viz.(a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default ; (b) the amount of loss caused to an investor or group of investors as a result of the default and; (c) the repetitive nature of the default.
4.14 With respect to the amount of loss caused to an investor or group of investors as a result of the default, there are no quantifiable figures available on record and also there is no information on record whether Mr.Mathew Easow had committed similar violations in the past.
4.15 As regards the disproportionate gain or unfair advantage, I considered the submission of Mr. Mathew Easow that a profit of Rs.6,70,115/- earned by MER and MEF during the relevant period on the said four scrips.
5.1 In view of the above findings, I impose a penalty of Rs.20,00,000/- (Rupees twenty lakh only) on Mr.Mathew Easow, i.e. around three times of the said profit earned.
5.2 Mr.Mathew Easow shall pay the amount of penalty imposed by way of demand draft in favour of “SEBI- Penalties Remittable to Government of India”, payable at Mumbai within 45 days of receipt of this order. The said demand draft should be forwarded to Shri Sunil Kadam, Deputy General Manager, Securities and Exchange Board of India, Mittal Court, ‘B’ Wing, 1st Floor, 224, Nariman Point, Mumbai – 400 021.
5.3 In terms of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, copies of this order are sent to Mr.Mathew Easow and also to Securities and Exchange Board of India.