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SECURITIES AND EXCHANGE BOARD OF CEASE AND DESIST ORDER UNDER SECTION 11D OF SECURITIES AND
EXCHANGE BOARD OF 1.
Background WTM/GA/45/IVD/1/06 1.1 It has
been noticed that representatives of some of the regulated entities such as
brokers, merchant bankers, asset management companies are offering investment
advice/tips regarding purchase and sales of shares/securities through media. These
advices are general in nature and addressed to the entire investor community at
large. Many times, such advices and recommendations are given with an air of
seeming pedantry without specific disclaimers or disclosing stock specific
positions taken by such persons. Investment decisions of lay investors may be influenced
by these recommendations. In order to bring to the notice of the public the
subsistence of vested interest of such entities in the recommendations given by
these entities and the investment portfolios held by them or by the regulated
entities they represent, SEBI has prescribed certain disclosure requirements for
the intermediaries through the regulations. The regulations require that the
intermediaries or their employees shall not render directly or indirectly any investment
advice about any security in the publicly accessible media, whether real time
or non-real-time, unless a disclosure of his long or short position in the said
security has been made, while rendering
such advice. SEBI has also issued letters to the Television media in this
regard. 1.2 Since,
the recommendations made to the public do impact the investment decisions of
the general public, it is of utmost importance that those who give the
recommendations do so, taking into account the duties cast on them for making necessary
disclosures, so as to ensure the integrity of their recommendations, sans
the runes of their vested
interest. 1.3 Misleading
information affects the market integrity, as unsuspecting investors fall an
easy prey to such information while making investment decisions. Such
recommendations aired through public media and their influence on the investors
has been the concern of SEBI, particularly when they are the manifestations of an undisclosed
interest. SEBI and the stock exchanges have been analyzing this issue for quite
some time. As a part of ongoing analysis, the recommendations given over a
period of 6 months from June 2005 to December 2005 by one Mathew Easow, who is the
Chairman of Mathew Easow Research Securities Limited, have been examined by
SEBI and the stock exchanges. 1.4 It is
also gathered that 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. 2.
Preliminary findings 2.1 The
dealing in the shares by Mathew Easow with respect to the following recommendations
given by him on the website moneycontrol.com
was examined: Table A: Recommendations given by
Mathew Easow
2.2 The above
table of recommendations given by Mr. Mathew Easow, when juxtaposed with the trading
pattern of Mathew Easow on the same securities, provides valuable insights into
the pattern between his recommendations to the public and his own investment
behavior. The trade data gathered from the exchanges revealed that Mathew Easow
dealt in the shares of the above mentioned companies through his associate
companies i.e. Mathew Easow Research Securities Limited and Mathew Easow Fiscal
Services Limited. The details of their trading are given below: Table B: Trading by Mathew Easow in the
shares in which he gave recommendations
* Dealing in the shares prior to the date of
recommendation. 2.3 The trading details depict
a clear pattern of autocorrelation between the professed recommendations of
Mathew Easow to the pubic and his own investments. Some examples are analyzed below: Kalpana Industries Ltd. In the
case of Kalpana Industries Ltd, Mathew Easow bought 54,500 shares prior to the
date of the recommendation. The price of the scrip rose upto Rs 80.35 on the
date of recommendation ( CESC Ltd In the
case of CESC Ltd, Mathew Easow gave the recommendations on Ahlcon Parenterals ( In the
case of Ahlcon Parenterals ( Albert David Ltd In the case
of Albert David Ltd, Mathew Easow gave the recommendations on The above
instances clearly indicate that Mathew Easow took an opposite trading position to
what he recommended to the investors at large and he also started selling the
stock after giving an opposite advice to the market. It is pertinent to note
that after a gap of more than three months of the recommendations given by
Mathew Easow, none of the scrip prices have reached anywhere close to the
target price recommended by him (as can be seen from Table A). 3. Conclusion 3.1 I see from the above
analysis a clear and definite pattern in the trading by Mathew Easow in certain
shares and his investment recommendations in those shares. While Mathew Easow
has been advising the market to buy a stock, he himself has taken contrary
positions. This indicates an obvious attempt to mislead the investors through
investment recommendations, in a striking posture of ambivalence coupled with
interest. 3.2 It is apparent that
Mathew Easow is purveying information to the public which he himself does not
appear to believe to be true. The only possible ulterior motive for Mathew
Easow to employ such an artifice appears to be to make unfair gain for himself at
the cost of lay investors. The act of Mathew Easow and his associate entities thus
is in violation of Regulation 4(2) (f) of SEBI (Prohibition of Fraudulent and
Unfair Trade Practices Relating to Securities Market) Regulations, 2003, which
reads as follows: “Dealing in securities shall be deemed to be
a fraudulent or an unfair trade practice if it involves fraud and may include
all or any of the following, namely… publishing or causing to publish or
reporting or causing to report by a person dealing in securities, any information which is not true or which
he does not believe to be true prior to or in the course of dealing in
securities.” 3.3 While making investment
recommendations on securities in the said website, Mathew Easow has not
disclosed his interest or the interest of his family members in the securities.
In view of the fact that the said Mathew Easow is a representative of Mathew
Easow Fiscal Services Ltd., which is a SEBI registered broker with OTCEI, the
intermediary has violated clause B(7A) of the Code of Conduct for Stock Brokers
as given in Schedule II read with regulation 7 of the SEBI (Stock Brokers and
Sub-brokers) Regulations, 1992. Similarly since he is also a representative of Mathew
Easow Financial Services, which is a SEBI registered sub-broker, it would
amount that the intermediary has failed in ensuring compliance with clause
B(7A) of the Code of Conduct for Sub-brokers as given in Schedule III read with
regulation 15 of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. 3.4 The aforesaid provisions
of both the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating
to Securities Market) Regulations, 2003 and the Codes of Conduct in the SEBI
(Stock Brokers and Sub-brokers) Regulations, 1992 are salutary provisions aimed
at ensuring market integrity and protecting the lay investors. If Mathew Easow
or any of his associated entities could flout them with impunity, the market
integrity is threatened. 3.5 The
investors should therefore exercise utmost caution in relying upon the
recommendations often disseminated through the public media and not be guided
in the investment decisions solely by such recommendations. Also the media with
its visibility and pervasive and persuasive appeal has a responsibility to the
investing public at large in disseminating truthful and fair information to the
public. 3.6 Having regard to the
foregoing, it is apprehended that lay investors could be further mislead,
particularly having regard to the present state of the market. As a regulator,
it is SEBI’s bounden duty to take immediate steps to prevent such persons from
further misleading the investors and impairing the integrity of the market. Accordingly,
in this case I feel that immediate action is called for in the interest of the
investing public. 4. Order 4.1 Therefore, in exercise of
the powers delegated to me by the SEBI Board in terms of Section 19 of the
Securities and Exchange Board of India Act 1992 read with Section 11D, I hereby,
by way of ad interim, ex-parte order, direct 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. 4.2 I further direct Mathew
Easow Fiscal Services Limited to cease and desist from committing any violation
of clause B(7A) of the Code of Conduct for Stock Brokers laid down in Schedule
II read with regulation 7 of the SEBI (Stock Brokers and Sub-brokers)
Regulations, 1992. 4.3 I also direct M/s Mathew
Easow Financial Services to cease and desist from committing any violation of clause
B(7A) of the Code of Conduct for Sub-brokers laid down in Schedule III read
with regulation 15 of the SEBI (Stock Brokers and Sub-brokers) Regulations,
1992. 4.4 I also take this
opportunity to caution investors to take informed investment decisions without
being influenced by such recommendations given in the public media. 4.5 moneycontrol.com being a website with a wide reach, has a
responsibility cast on them for exercising due care and diligence to ensure
that persons with proven credentials of giving fair and truthful information
and analysis alone are allowed to give advise on the portal so that the portal
is not misused by persons giving advice purely on considerations of personal
gains. 4.6 The above order shall
take effect immediately. However, the entities/persons against whom this order
is issued may file their objections, if any, to this order within 15 days from
the date of this order and, if they so desire, avail themselves of an
opportunity of personal hearing at the Securities and Exchange Board of India,
Head Office, First Floor, Mittal Court B Wing, Nariman Point, Mumbai 400 021 on
a date and at a time to be fixed on a specific request, to be received in this
behalf from the entities/persons within
15 days from the date of this order, in which case their representations shall
be considered and a final view taken. If they do not respond within such
stipulated time, it shall take final effect against them.
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