(IV) THE INQUIRY
The undersigned was of the view that an inquiry should be held in the matter and a notice of inquiry was therefore issued to the member fixing the date of inquiry on February 07, 2005. The member appeared before the undersigned for the inquiry and reiterated the submissions made vide the cited letter.
(V) BACKGROUND
- SEBI carried out an investigation in the scrip for the period 31st January, 2003 to 7th February, 2003, which revealed that the major two clients trading in the scrip were connected/related to each other and therefore a full fledged investigation in the scrip was recommended. Accordingly, investigation in the scrip was initiated for the period from 31st January, 2003 to 4th April, 2003.
2. During the period of investigation, it was observed that the scrip had opened at Rs. 8.6 on 31.01.2003, touched a intra-day high of Rs. 9.55 on 03.02.2003, then was traded between the price range of Rs. 8 to Rs. 9 till 12.02.2003. Subsequently, the scrip fell to its intra-day low of Rs. 1.70 on 04.04.2003 and finally closed at Rs. 1.80 on 04.04.2003.
- It was observed that during the period of investigation, the ultimate client of the member Ramrakh R Bohra (577), was ASK Holdings Pvt. Ltd. (Director Ashok Kumar Jain), and it had net purchased 15,66,001 shares, which accounted for 30.97 % of the total issued shares capital of the company and 79.37 % of the total floating stock of the company. Shri Vinod Khetan, the ultimate client of the member Ramaben Samani Finance P. Ltd. (101) had sold 15,57,405 shares, which accounted for 30.80 % of the total issued capital of the company.
- Shri Vinod Khetan had sold shares 15,57,405 shares in various settlements, which accounted for 30.80 % of the total issued shares capital of the company and 78.93 % of the total floating stock of the company.
5. It was observed that there was a single continuous buyer and a seller who had purchased and sold large quantities and were connected /related to each other and there was a low floating stock in the market. It was observed that these clients were reversing their positions in off market deals and were giving legality to their transactions, which were in the nature of financial accommodation.
- It was observed form the analysis of trades of more than 3000 shares that;
6.1. Total quantity executed in trades of more than 3000 shares was 8,57,584 shares, which was 42.08% of the total traded quantity during the period of investigation.
6.2. Total quantity executed in trades of more than 10000 shares, where the buy and sell orders were placed within one minute, was 7,22,185 shares, which was 35.44% of the total traded quantity during the period of investigation.
6.3. Out of 8,57,584 shares executed in trades of more than 3000 shares, 6,95,00 shares were executed between the buyer member Ramrakh R Bohra (577) and seller member Ramaben Samani Finance P. Ltd. (101), where the buy and sell orders were placed within 15 seconds of each other, where on most of the occasion, the sell orders were placed either prior to the buy orders or at the same time.
- Following is the tabulation of the valid buy and the sell order for the two brokers and their two clients:
|
SettNo.
|
Total Valid Buy order placed in the system
|
Total no. of Invalid buy orders placed in the system (101 + 262)
|
Total Valid sell orders placed in the system
|
Total no. of Invalid sell orders placed in the system (101 + 262)
|
Total Executed quantity
|
Buy order placed by the member Ramrakh R Bohra (577)
|
Sell order placed by the member Ramaben Samani Finance P. Ltd. (101)
|
Buy Quantity executed in favour the member Ramrakh R Bohra (577)
|
Sell Quantity executed in favour the member Ramaben Samani Finance P. Ltd. (101)
|
|
214
|
51400
|
0
|
58300
|
0
|
51200
|
0
|
0
|
0
|
0
|
|
215
|
236000
|
0
|
236000
|
0
|
236000
|
231000
|
230000
|
231000
|
230000
|
|
216
|
0
|
0
|
5500
|
0
|
0
|
0
|
0
|
0
|
0
|
|
217
|
4000
|
0
|
16500
|
0
|
4000
|
0
|
0
|
0
|
0
|
|
218
|
104000
|
0
|
105800
|
|
104000
|
100000
|
100000
|
100000
|
100000
|
|
219
|
100000
|
0
|
101300
|
|
100000
|
100000
|
100000
|
100000
|
100000
|
|
220
|
67550
|
0
|
90765
|
|
67550
|
30075
|
30000
|
30075
|
30000
|
|
221
|
105020
|
10
|
105120
|
|
105015
|
100010
|
100000
|
100010
|
100000
|
|
222
|
45000
|
0
|
63260
|
|
45000
|
40000
|
40000
|
40000
|
40000
|
|
223
|
91030
|
0
|
1102030
|
|
91030
|
91010
|
91000
|
91010
|
91000
|
|
224
|
105000
|
0
|
112100
|
|
105000
|
100000
|
100000
|
100000
|
100000
|
|
225
|
25
|
0
|
24485
|
|
25
|
0
|
0
|
0
|
0
|
|
226
|
135000
|
0
|
153805
|
|
135000
|
128985
|
130000
|
128985
|
130000
|
|
227
|
118995
|
0
|
138575
|
|
118995
|
100005
|
100000
|
100005
|
100000
|
|
229
|
66900
|
0
|
91981
|
|
66900
|
30000
|
30000
|
30000
|
30000
|
|
230
|
156001
|
0
|
166491
|
|
156001
|
100000
|
100000
|
100000
|
100000
|
|
231
|
39600
|
0
|
58082
|
|
39600
|
39100
|
38000
|
39100
|
38000
|
|
232
|
2000
|
0
|
58990
|
|
2000
|
0
|
0
|
0
|
0
|
|
233
|
199490
|
0
|
252390
|
|
199490
|
199490
|
192000
|
199490
|
192000
|
|
235
|
101
|
0
|
77000
|
|
101
|
1
|
0
|
1
|
0
|
|
236
|
50
|
0
|
112899
|
|
50
|
0
|
38000
|
0
|
0
|
|
237
|
50
|
0
|
90454
|
|
50
|
0
|
0
|
0
|
0
|
|
238
|
5
|
0
|
111000
|
|
5
|
5
|
0
|
5
|
0
|
|
239
|
177405
|
0
|
256304
|
|
177405
|
177405
|
177405
|
177405
|
177405
|
|
240
|
1050
|
0
|
69899
|
|
1050
|
0
|
0
|
0
|
0
|
|
241
|
40000
|
0
|
248500
|
|
40000
|
0
|
0
|
0
|
0
|
|
242
|
30200
|
0
|
100000
|
|
30200
|
0
|
0
|
0
|
0
|
|
244
|
35050
|
1
|
103550
|
|
35050
|
0
|
0
|
0
|
0
|
|
245
|
100
|
0
|
75000
|
|
100
|
0
|
0
|
0
|
0
|
|
246
|
200
|
0
|
148600
|
|
200
|
0
|
0
|
0
|
0
|
|
247
|
25200
|
0
|
406700
|
|
25200
|
0
|
0
|
0
|
0
|
|
248
|
10
|
0
|
325000
|
|
10
|
0
|
0
|
0
|
0
|
|
249
|
2201
|
158
|
198000
|
|
2201
|
0
|
0
|
0
|
0
|
|
250
|
1
|
0
|
325405
|
|
1
|
0
|
0
|
0
|
0
|
|
001
|
10
|
0
|
325405
|
|
10
|
0
|
0
|
0
|
0
|
|
002
|
2010
|
0
|
325405
|
|
2010
|
0
|
0
|
0
|
0
|
|
003
|
5010
|
0
|
196180
|
|
5010
|
0
|
0
|
0
|
0
|
|
004
|
10
|
0
|
246180
|
|
10
|
0
|
0
|
0
|
0
|
|
005
|
1000
|
0
|
146180
|
|
1000
|
0
|
0
|
0
|
0
|
|
006
|
61180
|
0
|
147180
|
0
|
46180
|
0
|
0
|
0
|
0
|
|
007
|
82954
|
0
|
45264
|
100
|
45264
|
0
|
0
|
0
|
0
|
|
|
2090808
|
|
7021579
|
|
2037913
|
1566509
|
1596304
|
1566509
|
1558304
|
- It was observed from the aforesaid table that:
8.1. There were more sell orders than the buy orders indicating a selling pressure during the period of investigation.
8.2. On the day, when there were large volumes, the member Ramrakh R Bohra (577) and Ramaben Samani Finance P. Ltd. (101) had contributed more than 90% to the same.
8.3. During the settlement no. DR/240-0203 to DR/007-0304, the member P Suryakant Share & Stock Brokers Pvt. Ltd. (792), Crescent Finstock Ltd. (186) and Shri Ramrakh R Bohra (577) had placed large sell orders, however the same either were executed for small quantity or were not executed, as there were no buyers.
- During the investigations it was submitted by the client ASK Holdings Pvt. Ltd. that these were purely financing transactions. He also stated that there was never any intention to transfer the beneficial interest in the securities.
(V) REPLY OF THE MEMBER
1. The member submitted that they had not played the role, as alleged in the notice under reply. At the time of effecting the transaction they were not even aware that the transaction has been matched. The member submitted that they had acted only as a Broker, and earned negligible brokerage of Rs.31148/- in the transactions in question.
2. The member has denied that they have violated the provisions of Regulations 4, (b) (c) & (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations 1995. In their reply and the submission during personal hearing they have expressed their ignorance about the manipulation and synchronization of the trading but at the same time it is submitted by them that these clients in connivance with the counter broker M/s R. R. Bohra have manipulated the trading of the shares.
(VII) FINDINGS
1. It was observed that during the period of investigation, the ultimate client of the member Ramrakh R Bohra (577), was ASK Holdings Pvt. Ltd. (Director Ashok Kumar Jain), and it had net purchased 15,66,001 shares, which accounted for 30.97 % of the total issued shares capital of the company and 79.37 % of the total floating stock of the company. Shri Vinod Khetan, the ultimate client of the member Ramaben Samani Finance P. Ltd. (101) had sold 15,57,405 shares, which accounted for 30.80 % of the total issued capital of the company.
2. Shri Vinod Khetan had sold shares 15,57,405 shares in various settlements, which accounted for 30.80 % of the total issued shares capital of the company and 78.93 % of the total floating stock of the company.
3. It was observed that there was a single continuous buyer and a seller who had purchased and sold large quantities and were connected /related to each other and there was a low floating stock in the market. It was observed that these clients were reversing their positions in off market deals and were giving legality to their transactions, which were in the nature of financial accommodation.
4. It was observed form the analysis of trades of more than 3000 shares that;
(i) Total quantity executed in trades of more than 3000 shares was 8,57,584 shares, which was 42.08% of the total traded quantity during the period of investigation.
(ii) Total quantity executed in trades of more than 10000 shares, where the buy and sell orders were placed within one minute, was 7,22,185 shares, which was 35.44% of the total traded quantity during the period of investigation.
(iii) Out of 8,57,584 shares executed in trades of more than 3000 shares, 6,95,00 shares were executed between the buyer member Ramrakh R Bohra (577) and seller member Ramaben Samani Finance P. Ltd. (101), where the buy and sell orders were placed within 15 seconds of each other, where on most of the occasion, the sell orders were placed either prior to the buy orders or at the same time.
5. It was also observed that:
(i) There were more sell orders than the buy orders indicating a selling pressure during the period of investigation.
(ii) On the day, when there were large volumes, the member Ramrakh R Bohra (577) and Ramaben Samani Finance P. Ltd. (101) had contributed more than 90% to the same.
(iii) During the settlement no. DR/240-0203 to DR/007-0304, the member P Suryakant Share & Stock Brokers Pvt. Ltd. (792), Crescent Finstock Ltd.(186) and Ramrakh R Bohra (577) had placed large sell orders, however the same either were executed for small quantity or were not executed, as there were no buyers.
6. During the investigations it was submitted by the client ASK Holdings Pvt. Ltd. that these were purely financing transactions. He also stated that there was never any intention to transfer the beneficial interest in the securities.
7. It is observed from the investigation report that clients ASK Holdings Pvt. Ltd. and Vinod Khetan were known to each other and as per their admission they were business partners and friends. Vinod Khetan had stated that he had allowed his name to be used by ASK Holdings Pvt. Ltd. Only with the intention of helping out his friend.
8. It is observed that ASK Holding Pvt. Ltd. Sold shares from the offices of Ramaben Samani Pvt. Ltd. In the name of Vinod Khetan. ASK Holdings Pvt. Ltd. had the trading terminal of the broker Ramrakh R Bohra. From this terminal he bought the shares offered by Ramaben Samani Pvt. Ltd.
9. ASK Holdings Pvt. Ltd. and Vinod Khetan then synchronized the entry of the orders on the terminal of Ramrakh R Bohra.
10. These transactions were performed over and over again. The shares which were received at the end of member Ramrakh R Bohra for the bought transactions were then transferred from Ramrakh R Bohra’s demat a/c no. 14936243 with SHCIL, to the demat account of Shri Vinod Khetan no. 16089888.
11. The trades of these clients are as follows:
|
Sr. no.
|
Settlement
no.
|
ASK Holdings Pvt. Ltd. (buy)
Ramrakh R Bohra
|
Vinod Khetan (sell)
Ramaben Samani Pvt. Ltd.
|
|
1.
|
215
|
231000
|
231000
|
|
2.
|
218
|
100000
|
100000
|
|
3.
|
219
|
100000
|
100000
|
|
4.
|
220
|
30000
|
30000
|
|
5.
|
221
|
100010
|
100000
|
|
6.
|
222
|
40000
|
40000
|
|
7.
|
223
|
91010
|
90015
|
|
8.
|
224
|
100000
|
100000
|
|
9.
|
226
|
128985
|
130000
|
|
10.
|
227
|
100000
|
100000
|
|
11.
|
229
|
30000
|
30000
|
|
12.
|
230
|
100000
|
100000
|
|
13.
|
231
|
39095
|
38000
|
|
14.
|
233
|
199490
|
192000
|
|
15.
|
235
|
1
|
0
|
|
16.
|
238
|
5
|
0
|
|
17.
|
239
|
177405
|
177405
|
It is obvious from the above that all the trades have been matched exactly with the other with respect to quantity except on a few occasions.
12. It is observed from the above that the transactions were fictitious in nature. Shri Ashok Kumar Jain, Director of Ask Holdings Pvt. Ltd. in his statement dated April 16, 2004 stated that “We used to synchronize the entry of the orders at my terminal (RRBohra) at for Shri Vinod Khetan(R Samani). While at times I have been the initiator of the orders i.e. buy orders, at others R Samani has been the initiator. For this purpose I used to speak telephonically online with Ms. Sudha Vithlani on some occasions and at other times with her employees.”
13. I also find that Ashok Kumar Jain, the director of ASK Holdings Pvt. Ltd. was questioned by investigating officials as to the intentions of these transactions. In his statement recorded on May 13, 2004, he agreed with the conclusion of the Investigating Authority that “ Yes I confirm that these transactions were entered into without the intention of the transfer of the ownership of the shares”.
14. ASK Holdings Pvt. Ltd. also admitted during investigations that both the brokers at both legs of the transactions were aware of the nature of these transactions. It was registered with both the brokers as a client, though it did not trade in this scrip during the period under reference I also find a reference that “Shri R R Bohra was aware of the financial predicament I was in and he accommodated me during the financial crisis and facilitated these transactions for enabling me to pay my pay-in due and other obligations”
15. During investigation the member submitted that they were not aware of the synchronisation of the transactions from their trading terminal and stated that it did not supervise the trading of the client as long as he was getting his payment and delivery in time.
16. The submissions of the member in their reply that they were not aware about the synchronized transactions is not at all convincing to me as in a statement before the Investigating Authority, the member has agreed that the scrip was illiquid during the period under reference. When a single investor client is accounted for trading in 30.80% of the total issued share capital of the company, the member cannot be supposed to be ignorant of these synchronized trading. I have no doubt in holding that without the co – operation of the member with the client, such type of synchronized trading, which has grossly resulted in misuse of stock exchange mechanism thereby causing fluctuation, in the price of the scrip, would not have been possible. Further also, had the member exercised due skill and care, the clients would not have succeeded in mis using the stock exchange mechanism for their unlawful gains.
17. The member has therefore been found of having aided and abetted the client in creation of artificial volumes in the scrip and therefore indulged in fraudulent and unfair trade practices relating to securities and which is in violation of Regulation 4 (b), (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the securities market) Regulations 1995, which inter – alia provides:- 4 (b), (c) & (d); No person shall :
(b) Indulge in any act, which is calculated to create a false or misleading appearance of trading on the securities market;
(c) Indulge in any act, which results in reflection of prices of securities based on transactions that are not genuine transactions;
(d) Enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate, depress or cause fluctuations in the market price of the securities”.
18. In view of the above it is held that the member has violated the provisions of section 15HA of SEBI Act, 1992 for having indulged in fraudulent and unfair trade practices relating to securities markets. The violations in this regard attracts the penalty as prescribed under section 15HA of the SEBI Act and in order to adjudge the quantum of penalty, I have to consider the following factors:
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.
It is further found from the member’s submission that they have earned a brokerage of RS. 31,148/-, out of the above illegal transactions. As per Section 15HA of SEBI Act, I find that penalty equal to 3 times of amount of profits made out of such fraudulent and unfair trade practices, can be levied. I have also noted that Bombay Stock Exchange has imposed a fine of Rs. 25,000/- upon the member for the identical violations.
(VIII) ORDER
The submissions of the member have been considered and dealt in detail as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under sections 15 HA of the SEBI Act, 1992. In view of the same and in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with, Rule 5 of the said Rules, I hereby impose penalty of Rs. Seventy Five Thousand only (Rs.75,000/-) on the member.
The aforesaid penalty shall be paid 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 the General Manager of SEBI, Investigation Department, ID-3 at SEBI, Mittal Court, B- Wing, 1st Floor, 224 Nariman Point, Mumbai 400 0021.
Date: April 11 2005.
Place: Mumbai
AMIT PRADHAN
ADJUDICATING OFFICER