Order against Mr. Mathew Easow

 

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.

 

Date and Time	Stock	Reco given	Details	Closing Price as on (Rs)
				Date of Recom	17/01/06
13-09-2005 (9.23 A.M.)	Kalpana Industries Ltd	Buy	It can touch Rs. 140 in six months.	78.90	49.45
14-09-2005 (9.27 A.M.)	CESC Ltd.	Buy	Its short term target is Rs. 270	238.45	261.45
19-09-2005 (12.52 P.M.)		Buy	Under priced CESC can hit Rs. 300 in 3 months	244.03	261.43
20-09-2005 (9.42 A.M.)	Ahlcon Parent	Buy	Its short term target is Rs. 105	73.78	77.86
01-09-2005 (9.24 A.M.)	Albert David Ltd	Buy	Short term target for Albert David is Rs. 200	146.52	130.67
15-09-2005 (9.24 A.M.)		Buy	Albert David above Rs. 142, it can touch Rs.200	143.08	130.67

 

 

 

 

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:

 

Period	Scrip	Exch.	Entity	Recommendation given	Trading by Mathew
					Buy Qty	Sell Qty
*02.09.2005	Kalpana Industries	BSE	MER		21735	0
*06.09.2005	Kalpana Industries	BSE	MER		7131	0
*08.09.2005	Kalpana Industries	BSE	MER		2148	4500
*09.09.2005	Kalpana Industries	BSE	MER		20786	0
*09.09.2005	Kalpana Industries	BSE	MEF		2700	0
*12.09.2005	Kalpana Industries	BSE	MER		0	21356
13.09.2005	Kalpana Industries	BSE	MER	Buy	0	13500
14.09.2005	Kalpana Industries	BSE	MER		0	9900
14.09.2005	Kalpana Industries	BSE	MEF		0	1800
*01.09.2005	CESC	NSE (F&O)	MEF			4400
19.09.2005	CESC	BSE	MER	Buy	0	2190
19.09.2005	CESC	NSE	MER	Buy	0	1110
28.09.2005	CESC	NSE (F&O)	MEF		4400
20.09.2005	Ahlcon Parent	BSE	MER	Buy	0	62563
21.09.2005	Ahlcon Parent	BSE	MER		0	14110
23.09.2005	Ahlcon Parent	BSE	MER		0	943
27.09.2005	Ahlcon Parent	BSE	MER		0	19523
28.09.2005	Ahlcon Parent	BSE	MER		1500	11295
30.09.2005	Ahlcon Parent	BSE	MER		0	4439
*29.08.2005	Albert David	BSE	MER		90	0
*31.08.2005	Albert David	BSE	MER		14500	0
01.09.2005	Albert David	BSE	MER	Buy	0	2700
06.09.2005	Albert David	BSE	MER		0	1460
09.09.2005	Albert David	BSE	MER		0	200
14.09.2005	Albert David	BSE	MER		0	3789
19.09.2005	Albert David	BSE	MER	Buy	0	83

* 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 May 25, 2006. After considering the reply, a personal hearing was granted to Mr. Mathew Easow on June 09, 2006 as provided under Rule 3 of SEBI (Procedure for holding Inquiry and imposing penalties by Adjudicating Officer) Rules, 1995 and the same was rescheduled on June 14, 2006 at the request of Mr. Mathew Easow. Further, Mr. Mathew Easow has also submitted his written submission vide his letter dated July 06, 2006.

 

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 (Japan) among other television channels as a stock analyst on topics and issues relating to corporate affairs and the securities markets. He also contributes to the website www.moneycontrol.com (promoted and maintained by CNBC) by way of emails. His articles have also been published in The Economic Times, Business Standard and The Hindu Business Line. He has been a frequent guest lecturer at The Institute of Chartered Accountants, The Institute of Chartered Financial Analysts, Birla Institute of Futuristic Studies etc.

 

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 31/08/2005 Mathew Easow recommended three shares namely Albert David, Mirza Tanner and Hindalco Ind but only Albert David has been mentioned in the SEBI report. He recommended Albert David with a short term target of Rs.200 but at the same time short term resistance target of 145, 146, & 147 were also mentioned in the report as routine profit taking levels. The trade detail in the scrip of Albert David is given below:

Date	Name	Bought/Sold	Qnty	rate	Exchange traded quantity	Closing price
01/09/05	MER	Sold	2700	147.01	191165	143.00
06/09/05	MER	Sold	1460	145.78	64361	144.50
09/09/05	MER	Sold	200	146.28	629484	143.85
14/09/05	MER	Sold	3789	143.17	35073	140.20
19/09/05	MER	Sold	83	143.93	25055	141.75

 

2.7  MER purchased 13500 shares of Albert @ 140/- and sold only 2700 on 1^st September and 1460 on 6^th September and 200 on 9^th September and 3789 on 14^th of September. Here again MER had taken a pure trading position. As on 1^st September, 2005 Albert David comprised 8.40% of the total holding of MER and as on 15^th 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 1^st September to 19^th 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 12/09/05 Mathew Easow recommended three shares namely Kalpana industries, Albert david and Mirza tanner but only Kalpana Industries has been mentioned in the SEBI order. He recommended the Kalpana industries with a short term target of Rs.90 and 6 months target of Rs.140 along with resistance level of 74.65, 75, 75.75 and 79.95. The trade detail in the scrip of Kalpana Industries is given below:

Date	Name	Bought/ Sold	Qnty	rate	Exchange traded quantity	Closing price
13/09/05	MER	Sold	13500	78.19	83740	80.35
14/09/05	MER	Sold	9900	86.80	137366	85.75
	MEF	Sold	1800	85.78

 

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 14^th 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 14/09/05 i.e. the target of Rs.90 was almost achieved. Mr. Mathew Easow strongly believed that the price of the share would touch Rs.90 & 140 and that is why MER held on to 6755 shares and MEF held on 900 shares as on 30/09/05. If Mr. Mathew Easow did not have this belief he would have sold his entire quantity of shares on 14/09/05 when the price was Rs.88.40.

 

2.10          In the email dated 13/09/05 Mathew Easow recommended three shares namely CESC, Rolta and Albert david but only CESC has been mentioned in the SEBI Order. In the email dated 14/09/05, Mathew Easow recommended three shares namely CESC, Rolta and Albert david but only Albert david has been mentioned in the SEBI Order. Incidentally, on 15/09/05 no shares of CESC or Albert David were sold. However, 2841 shares of Rolta were sold.

 

2.11          Mr.Mathew Easow recommended the CESC in 13/09/05 email with a short term target of Rs.270 and with a stop loss of 237. In his 14/09/05 email he recommended the CESC with a short term target of Rs.270 with profit taking levels of 240, 242 & 244 and with a stop loss of Rs.231. On 14/09/05 the scrip closed in the negative at 234.25. MER sold only 3300 shares at Rs.242.80 out of the entire quantity of 35200 shares. MER held on to the entire remaining quantity of 31900 shares even though the price went up to 246 on 19/09/05 because they had full faith that the company had the potential to touch Rs.300. In fact MEF which had a hedge position of 4400 shares on 28/09/05 much after the date of recommendation.

 

2.12          In the email dated 17/09/05 Mathew Easow recommended three shares namely Albert david, Rolta and CESC but only Albert David and CESC are mentioned in the SEBI Order. CESC is mentioned as follows in the captioned order: “Under priced CESC can hit Rs.300 in three months”. This is not a full report of what he had recommended and he had clearly given the resistance levels and the stop loss of 239. The sale of 3,300 shares (less than 10%) of CESC was a routine trading activity for MER. MER sold only 3300 shares out of a total holding of 35,200 shares as on 19^th September, 2005. As on 20^th September, 2005 the holding of MER was 31,900 shares.

 

2.13          In case of MEF, the company was holding 4400 shares of CESC prior to September 1, 2005 against which futures position of exactly 4400 shares were sold as a pure hedging position. This was in no way connected to the buy recommendation on 14^th & 19^th of September, 2005. Subsequently on 28^th September, 2005, ME Fiscal bought 4400 shares and the hedged position was covered since the September futures contract expired on 29^th of September, 2005. These 4400 shares were sold on 27^th October 2005 at an approximate price of Rs.197.25 because our stop loss was triggered. This again was a routine trading strategy. Please note that on the date of the recommendation dated 19^th September 2005, the closing price was 242.70. In spite of that, we did not sell those shares and instead sold at a much lower rate of Rs.197.25 on 27^th of October 2005. Therefore, we submit that MER and MEF had sold the shares in the ordinary course of business and not with an intention to take any undue advantage. Further, no “contrary positions” were taken by Mathew Easow and his associate entities. We would also like to submit that the closing price of CESC Ltd., as on 17^th January was Rs.261.43 and those who bought the shares of CESC on 19^th of September 2005 are still at a profit.

 

2.14          In the email dated 19/09/05 Mathew Easow recommended three shares namely Sterlite Industries, IDBI and Ahlcon but only Ahlcon is mentioned in the SEBI Order. In respect of Ahlcon, the captioned order says “it’s short term target is Rs.105”. However his email clearly indicated resistance levels (levels for profit taking – 72.9, 73.5 & 75.05) and stop loss of Rs.68.30 was mentioned along with support level. The trade detail in the scrip of Ahlcon is given below:

Date	Name	Bought/ Sold	Qnty	rate	Exchange traded quantity	Closing price
20/09/05	MER	Sold	62563	73.65	116809	74.15
21/09/05	MER	Sold	14110	73.28	53631	71.95
23/09/05	MER	Sold	943	66.85	20986	66.30
27/09/05	MER	Sold	19523	72.64	36238	70.95
28/09/05	MER	Sold	11295	71.19	33025	70.25
		Bought	1500
30/09/05	MER	Sold	4439	67.80	24465	69.30

 

2.15          It is to be noted that as on 30/09/05 MER was holding 43993 shares. If MER did not believe in the target of 105 then this shares would have easily been sold on 20/09/05 when the price have touched Rs.75.50 and volume was 116809 shares. MER had taken trading position and booked profit in the shares of Ahlcon between 20th September and 30^th September purely as a trading call. It is to be noted that as on 30.09.05 MER was holding 43993 shares. If MER did not believe in the target of 105 then this shares could have easily been sold on 20.09.05 when the price had touched Rs.75.50 and volume was 116809 shares.

 

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

Date	Recommendation	For Intraday trades
Email dated 31/08/05 for 01/09/05	Albert David (139.65) Listed on BSE Strong recommendation for Buying Short Term Target is 200	For intraday trades Buy above 143 R1-145, R2-146, R3-149 Sell Below 137 S1-135, S2-133, S3-140
Email dated 12/09/05 for 13/09/05	Albert David (143.60) Listed on BSE Strong recommendation for Buying Short Term Target is 200	For intraday trades Buy above 145 R1-146, R2-147, R3-148 Sell Below 143 S1-142, S2-141, S3-140
Email dated 13/09/05 for 14/09/05	Albert David (144.40) Listed on BSE Strong recommendation for Buying Short Term Target is 200	For intraday trades Buy above 145 R1-146, R2-147, R3-149 Sell Below 144 S1-143, S2-142, S3-141
Email dated 14/09/05 for 15/09/05	Albert David (144.20) Listed on BSE Strong recommendation for Buying Short Term Target is 200	For intraday trades Buy above 142 R1-143, R2-144, R3-146 Sell Below 138 S1-137, S2-136, S3-135
Email dated 17/09/05 for 19/09/05	Albert David (143.05) Listed on BSE Strong recommendation for Buying Short Term Target is 200	For intraday trades Buy above 144 R1-145, R2-146, R3-147 Sell Below 142 S1-141, S2-140, S3-139

 

 Trade details

Date	Name	Bought/ Sold	Qnty	rate	Exchange traded quantity	% of selling	Closing price
01/09/05	MER	Sold	2700	147.01	191165	1.41%	143.00
06/09/05	MER	Sold	1460	145.78	64361	2.27%	144.50
09/09/05	MER	Sold	200	146.28	629484	0.03%	143.85
14/09/05	MER	Sold	3789	143.17	35073	10.80%	140.20
19/09/05	MER	Sold	83	143.93	25055	0.33%	141.75

 

(2) Kalpana industries

Date	Recommendation	For Intraday trades
Email dated 12/09/05 for 13/09/05	Kalpana Industries (73.05) Listed on BSE Strong recommendation for Buying Short Term Target is 90 & 6 Month Target is 140	Buy above 79.95 R1-74.65, R2-75, R3-75.75 Sell Below 72.15 S1-71.50, S2-71.10, S3-70.40

 

Trade details

Date	Name	Bought/ Sold	Qnty	rate	Exchange traded quantity	% of selling	Closing price
13/09/05	MER	S	13500	78.19	83740	16.12%	80.35
14/09/05	MER	S	9900	86.80	137366	8.52%	85.75
	MEF	S	1800	85.78

 

(3) Ahlcon Parentals

Date	Recommendation	For Intraday trades
Email dated 19/09/05 for 20/09/05	Ahlcon Parentals (70) listed at BSE Very strong recommendation for Purchase Short Term Target is 105. Six month Target is 140	Buy above 71.70 R1-72.95, R2-73.75, R3-75.05 Sell Below 68.30 S1-67.05, S2-66.25, S3-64.95

 

Trade details

Date	Name	Bought/ Sold	Qnty	rate	Exchange traded quantity	% of selling	Closing price
20/09/05	MER	Sold	62563	73.65	116809	53.56%	74.15
21/09/05	MER	Sold	14110	73.28	53631	26.31%	71.95
23/09/05	MER	Sold	943	66.85	20986	4.49%	66.3
27/09/05	MER	Sold	19523	72.64	36238	53.87%	70.95
28/09/05	MER	Sold	11295	71.19	33025	34.20%	70.25
		Bought	1500
30/09/05	MER	Sold	4439	67.8	24465	18.14%	69.3

 

(4) CESC

Date	Recommendation	For Intraday trades
Email dated 13/09/05 for 14/09/05	CESC (238.35) Strong recommendation for Buying Short Term Target is 270	Buy above 240 R1-241, R2-242, R3-243 Sell Below 237 S1-236, S2-235, S3-234
Email dated 14/09/05 for 15/09/05	CESC (234.25) Strong recommendation for Buying Short Term Target is 270	Buy above 238 R1-240, R2-242, R3-244 Sell Below 231 S1-228, S2-227, S3-224
Email dated 17/09/05 for 19/09/05	CESC (241.70) Strong recommendation for Buying Short Term Target is 270	Buy above 244 R1-246, R2-247, R3-249 Sell Below 239 S1-238, S2-236, S3-235

 

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 01/09/2005, the short term target was given as Rs.200 and the resistance level given was from Rs.145 to Rs.149 and support level was from Rs.140 to Rs.135 when the previous day’s closing price was Rs.139.65. It was to be noted that there was no resistance level was given between Rs.149 and the target price of Rs.200. This substantiates that the resistance and support level were given only for the Intraday trades and not for the investors. However, the trading pattern of Mr.Mathew Easow did not suggest that he is an intraday trader. Therefore, Mr.Mathew Easow’s submission that he was selling whenever the target is reached is not admissible as these levels were recommended only for the intraday traders. Further, the resistance levels were given with a quote saying “BUY ABOVE” whereas at these levels Mr. Mathew Easow was selling. In fact, in the scrip of Ahlcon, the resistance was seems to arisen due to MER’s selling instead of market selling.

 

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 September 30, 2005 is given below:

Name of scrip	Qnty. Sold in Sep’05	Stock held end of Sep’05
Albert David	8,232	6,358
Kalpana Industries	25,200	7,655
Ahlcon (after adjusting 1500 buy)	1,11,373	43,993

 

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 28/09/05, he has not made any additional purchases in these four scrips after his ‘buy’ recommendations despite there were fall in the prices of these scrips.

 

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: September 26, 2006              B. RAJENDRAN

PLACE: MUMBAI                ADJUDICATING OFFICER