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ADJUDICATION ORDER AGAINST Mr.
MATHEW EASOW UNDER SECTION 15-HA OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING
PENALTIES BY ADJUDICATING OFFICER ) RULES, 1995 AO/BR/01/2006 1. BACKGROUND 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. 2.2
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: 2.4
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. 2.6
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 2.8
In the email dated
2.9
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 2.10
In the email dated 2.11
Mr.Mathew Easow recommended the CESC in 2.12
In the email dated 2.13
In case of MEF, the company was holding 4400 shares of CESC
prior to 2.14
In the email dated
2.15
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
Trade details
(2) Kalpana industries
Trade details
(3) Ahlcon Parentals
Trade details
(4) CESC
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. 4.6
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’,
on 4.7
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
on
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. 4.9
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. 5.0 ORDER 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. DATE: PLACE:
MUMBAI ADJUDIC |
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