SECURITIES AND EXCHANGE BOARD OF INDIA
DIRECTION UNDER 11B OF SEBI ACT, 1992 READ WITH REGULATION 12 OF SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 1995 AGAINST SHRI SHAMSHAD SHEIK AND M/S S M INVESTMENTS.
CO/ 455/IES/01/2003
1.1 Investigations were conducted in the scrip of M/s Morepen Hotels Ltd. (hereinafter referred to as MHL) by SEBI following a major spurt in the total volume and price of the scrip. From 29,400 shares during January 2000 including nil volume for the entire month of July 2000, it shot up to 11,34,200 shares during the period August to November. Further, the percentage of net quantity delivered to gross quantity traded during the period September 11 to November 17,2000 was less than 1% of the total traded volume on the Exchange. Although the brokers of BSE and NSE generated volumes in lakhs, their net delivery obligations in the scrip was however in the range of 100 to 200 shares. The price of the scrip also had gone up to a 52 week high at Rs.285/- on September 11, 2000 which was followed by a fall in price of 52 week low at Rs.154.65 on November 15, 2000.
1.2 Investigations revealed that Shri Shamshad Sheik / M/s. S M Investments had transacted in the scrip of MHL with an intention of artificially raising the price of the scrip and also for building artificial volumes in collusion with certain entities connected with it. It was also revealed during the investigation that Shri Shamshad Sheik / M/s S M Investments had acted in concert through a selected cartel of brokers of BSE and NSE and were involved in circular trading in the scrip which had pushed up the volumes to artificial levels at both NSE and BSE during the period from June 2000 to December 2000.
1.3 Investigations disclosed that Shri Shamshad Sheik / M/s S M Investments was responsible in artificially raising price of the scrip of MHL, having entered into purchase and sale of securities without intending to transfer the beneficial ownership and also for the purpose of creating a false / artificial market for the scrip.
1.4 Shri Shamshad Sheik / M/s S M Investments have been found to be acting in concert with other clients for a common purpose and objective for manipulation of scrip of MHL. From the investigation it was also found that Shri Shamshad Sheik / M/s S M Investments had violated the provisions of Regulation 4(b) and 4(d) of SEBI (FUTP) Regulations, 1995.
2.1 A show cause notice dated 14.06.2002 was issued to Shri Shamshad Sheik / M/s S M Investments asking them to show cause as to why suitable directions including such directions debarring / prohibiting Shri Shamshad Sheik / M/s S M Investment from dealings in securities market for a suitable period should not be issued under Section 11B of the SEBI Act, read with Regulations 11 and 12 of SEBI (FUTP) Regulations, 1995. They were also asked to submit their reply supported by necessary records / evidences which they liked to adduce in their support within 21 days from the date of receipt of the notice failing which it was said that SEBI shall presume that they had no explanation to offer and would be constrained to pass appropriate orders. No reply has been furnished by Shri Shamshad Sheik / M/s. S M Investment
3.1 Subsequently, a hearing was granted on 28.10.2002 which was communicated to M/s S M Investment vide letter dated 01.10.2002. No one represented M/s S M Investment in the scheduled hearing.
3.2 I have carefully considered the findings of the investigation and I find that M/s. S. M. Investment is a proprietary concern of Shri Shamshad Sheikh, residing at B/96/6 Government Colony, Bandra (East), Mumbai 51. Shri Shamshad Sheik was an employee of Jem Fiscal Ltd. located at 28, Great Western Building, 1st Floor, S. B. Road, Fort, Mumbai 23. Though he was the proprietor of S M Investments , whose main activity was to invest in securities market and do jobbing, he was stated to have been mainly dependent upon the salary income from his employer M/s Jem Fiscal Ltd, which was approximately Rs. 60,000/- p.a. The dealings of M/s. S. M. Investment in the scrip of Morepen Hotels Ltd. with different brokers are given as under:
|
Name of the Broker
|
Settl No.
|
Purchases
|
Sales
|
Gross
|
Net
|
|
Vaibhav Laxmi Consultancy
(Unregistered sub-broker to Triveni Mgmt. Consultancy NSE)
|
43
|
21,700
|
21,700
|
43,400
|
0
|
|
44
|
7,600
|
7,600
|
15,200
|
0
|
|
|
45
|
5,500
|
5,500
|
11,000
|
0
|
|
|
46
|
20,300
|
20,300
|
40,600
|
0
|
|
|
47
|
19,800
|
19,800
|
39,600
|
0
|
|
|
48
|
18,000
|
18,000
|
36,000
|
0
|
|
|
49
|
19,100
|
19,100
|
38,200
|
0
|
|
|
50
|
20,700
|
20,700
|
41,400
|
0
|
|
|
51
|
18,500
|
18,500
|
37,000
|
0
|
|
|
52
|
17,000
|
17,000
|
34,000
|
0
|
|
|
53
|
19,000
|
19,000
|
38,000
|
0
|
Total
|
|
1,85,700
|
1,85,700
|
3,71,400
|
0
|
|
Saurabh Investment & Financial Consultant
|
34
|
13,600
|
13,600
|
27,200
|
0
|
|
Sub-Broker to M. K. Poladia (BSE)
|
35
|
10,700
|
10,700
|
21,400
|
0
|
|
|
36
|
8,100
|
8,100
|
16,200
|
0
|
|
|
37
|
15,500
|
15,500
|
31,000
|
0
|
|
|
38
|
21,900
|
21,900
|
43,800
|
0
|
|
Total
|
|
69,800
|
69,800
|
1,39,600
|
0
|
|
Aman Securities
|
51
|
15,900
|
15,900
|
31,800
|
0
|
|
|
52
|
14,100
|
14,100
|
28,200
|
0
|
|
|
53
|
18,500
|
18,500
|
37,000
|
0
|
|
Total
|
|
48,500
|
48,500
|
97,000
|
0
|
|
Grand Total
|
|
3,04,000
|
3,04,000
|
6,08,000
|
0
|
3.3 M/s.S. M. Investments seem to have not paid any margin to any of the above mentioned brokers/sub-brokers and he had been settling their bills at the end of each settlement. The reasons for trading in the scrip with many brokers at the same time, according to Shri Sheik was that he was trading with only one broker of BSE and rest others were brokers/sub-brokers of NSE. He had also added that during the period under consideration the phone lines of most of the brokers/sub-brokers used to be very busy, which necessitated the need of trading through different brokers/sub-brokers.
3.4 According to Shri Sheik, the reasons for his trading in an illiquid scrip like Morepen Hotels was that he had traded in the scrip mainly because his employer M/s. Jem Fiscal Ltd. had been investing in the particular scrip and had been actively trading. However, it was also mentioned that his colleagues at Jem Fiscal Ltd. had also been trading in the scrip. He was also found to have been squaring off his positions almost on the same day in most of the cases, the reason for which was given by Shri Sheik that he wanted to avoid margin payments to the brokers.
3.5 It is seen that while opening the bank account Shri Fakruddin Moiyadi of FT Traders had introduced him to United Bank of India, Fort Branch, who is said to have known him for the last 5-6 years. When Shri Sheik was asked about the frequent cash deposits in his account, he stated that he had some cash with him and rest were borrowed funds from his friends/relatives to meet his obligation towards brokers.
3.6 The contention of the client that he was merely trading in the scrip on his own and had nothing to do with the trading of other clients operating from the same premises do not seem to hold good. Further, instead of investing in the scrip by taking delivery, he was merely creating artificial volumes probably at the behest of his employer. It is also noted that he had deposited huge cash in his bank account in order to pay up the brokers and earned a profit of approx. Rs. 20,000- Rs 30,000 for his dealings spread across 15-20 settlements with different brokers/sub-brokers.
3.7 From the trading details above, it is evident that the client has transacted in the scrip without giving and picking any delivery. Therefore, the purpose of his dealing was not to effect transfer of beneficial ownership but to create a false and misleading appearance of trading on the securities market.
3.8 It is also seen that M/s SM Investments was related to other clients dealing in the scrip, which is evident from the details mentioned above.
|
Name of the client
|
Relationship/Link with other clients
|
|
Jem Fiscal Ltd.
|
a) They are/were employer of Ketan Shah (K. N. traders), Prashant Shah (Prashant Investment), Kisan Parwad (K. P. Investment), Shamshad Sheikh (S. M. Investment), Narendra Navale (N. N. Investment).
|
|
|
b) The Director of the firm, Shri Nazir Hakeem is also a Director with Hakeem Auto Ltd.
|
|
|
c) Shri Nazir Hakeem introduced the bank a/c of F. T. Traders ( Prop. Fakruddin Moyiandi) with United Bank of India, Fort Branch.
|
|
|
d) Shri Prashant Shah ( Prashant Investments)placed orders on behalf of Jem Fiscal with Toss Financial Services, member NSE and Varun Stock Brokers, (Sub-broker to Suresh Rathi Securities)
|
|
Hakeem Auto Ltd.
|
a) The Director, Shri Nazir Hakeem is also a director of Jem Fiscal Ltd.
|
|
|
b) Introduced the bank account of F. T. Traders with United Bank of India.
|
|
N. N. Investment
|
a) The proprietor of the firm, Shri Narendra Navale, is an employee of Jem Fiscal Ltd.
|
|
|
b) He stated that he has traded on the recommendation of his employer’s website.
|
|
|
c) Shri Prashant Shah (Prop: Prashant Investment), who also in employment with Jem Fiscal Ltd. placed the orders on behalf of N. N. Investment with Toss Financial, member NSE.
|
|
S. M. Investment
|
a) The proprietor, Shri Shamshad Sheikh, is an employee of Jem Fiscal Ltd.
|
|
|
b) The account of the firm with United Bank of India was introduced by Shri Fakruddin Moiyaddi of F. T. Traders.
|
|
|
c) He had traded in the scrip because his employer, M/s. Jem Fiscal Ltd. was also trading in the scrip.
|
|
K. N. Traders
|
a) The proprietor, Shri Ketan Shah was employed with Jem Fiscal Ltd. as Manager (Reseach).
|
|
|
b) As per information provided by Shilpa Stock Brokers, he was trading on the terminal provided to Hakeem Auto Ltd.
|
|
|
c) He had given recommendation on the web site of Jem Fiscal Ltd.
|
|
|
d) He had also recommended the scrip for trading to Prashant Shah (Prashant Investment)
|
|
Prashant Investment
|
a) The proprietor, Shri Prashant Shah, is an employee of Jem Fiscal Ltd.
|
|
|
b) He had traded in the scrip based on the recommendation on the website of his employer.
|
|
|
c) Had discussed the matter with Ketan Shah (K. N. Traders) before he started trading in the scrip
|
|
|
d) He had placed orders for Jem Fiscal Ltd. with Varun Stock Brokers (Suresh Rathi Securities Pvt. Ltd.)
|
|
|
e) He had also placed orders for Jem Fiscal Ltd. with Toss Financial, Member NSE.
|
|
|
f) He had placed orders for N. N. Investment with Toss Financial, member NSE.
|
|
K. P. Investment
|
a) He is employed with Jem Fiscal Ltd.
|
|
|
b) Has traded mainly because his employer, Jem Fiscal Ltd. was also trading/investing in the scrip.
|
|
F. T. Traders
|
a) Shri Fakruddin Moiyadi, Prop. F. T. Traders, had given the office address of Jem Fiscal Ltd. as his correspondence address.
|
|
|
b) The BOLT terminal provided by Bhupendra M. Bheda to F. T. Traders was installed at the office address of Jem Fiscal Ltd.
|
|
|
c) The account of F. T. Traders with United Bank of India, Fort Branch was introduced by Shri Nazir Hakeem, who is a Director of Jem Fiscal Ltd. and Hakeem Auto Ltd.
|
|
|
d) Shri Fakruddin Moiyadi had introduced the account of S. M. Investment (Proprietor: Shri Shamshad Sheikh, an employee of Jem Fiscal Ltd.) with United Bank of India.
|
3.8 The other indicators showing the connections of the clients are as under:
¨ FT Traders ( Shri Fakruddin Moiyandi) had dealt through three members of BSE simultaneously viz. Bhupendra Bheda, Dinesh J Shah and Anantrai A Parekh
¨ Jem Fiscal Ltd dealt through two members of BSE simultaneously namely, Suresh Rathi Securities and GSB Capital Markets
¨ Prasanth Investments ( Prasanth Shah) and KP Investments (Kisan Parwad) have dealt in the scrip of MHL simultaneously through two BSE members viz. Joinder Capital and MJ Doshi.
¨ Hakeem Auto shared the same address as that of FT Traders and KN Traders
¨ Both FT Traders and KN Traders have accounts with United Bank of India and their account nos were close to each other i.e 4664 and 4667.
¨ The fax no. 2818179 given by Prasanth investments ( Prasanth Shah) is the same as that of Hakeem Auto and KN Traders.
¨ The telephone nos. provided by FT Traders in the client registration form to BSE member M/s DJ Shah were in the name of Smt. Hakeem Zohra who is one of the directors of \Jem Fiscal Ltd
¨ The telephone numbers provided by KP investments and Prasanth Investments in their client forms were matching with the telephone nos of Hakeem Zohra who is a director of Jem Fiscals Ltd
¨ Both Narendra Navale of NN Investments and Kisan Parwad of KN Traders shared the same address viz. Ganesh Nagar, Pump House, Andheri East.
3.9 It is thus found that, M/s SM Investments/ Shri Shamshed Sheik had been related to other clients dealing in the scrip, which is evident from the details mentioned above and had traded in the scrip in a manner which was “Circular in Nature”. It is evident from the transactions undertaken by M/s SM Investments /Shri Shamshed Sheik through various brokers in the same scrips the purpose of its dealing was not to transfer the beneficial ownership but for creating false and misleading appearance of trading in the securities market. M/s SM Investments and its proprietor Shri Shamshed Sheik, are therefore guilty of Violating the Provisions of Regulation 4 (b) and 4 (d) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market), Regulations, 1995.
3.10 Therefore, in exercise of the power conferred upon me under Section 4(3) of SEBI Act, 1992 read with Section 11B and with Regulation 11 and12 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices in Securities Market) Regulations, 1995, I hereby prohibit M/s SM Investments and its proprietor, Shri Shamshad Sheik from dealing in securities for a period of two years. This order shall come into force with immediate effect.
Place : Mumbai
G. N. Bajpai
Date : January 08, 2003
Chairman
Securities & Exchange Board of India