GENERAL MANAGER
INVESTIGATIONS DEPARTMENT
ID3
IVD/ID3/PKB/AA /HCL-PSIL/90573/2007
April 05, 2007
K K Fintrade Ltd.
CL/101, Sukhaliya
Pandit Dindayal Upadhyay Nagar
Indore (MP)
Dear Sirs,
Sub: Show Cause Notice under section 11 (4) read with section 11B of SEBI Act
- An investigation was conducted by SEBI in the case of alleged price manipulation in the scrips of Priyans Saree Industries Ltd. (PSIL) and Hindustan Continental Ltd. (HCL). The investigation revealed that, you, along with other entities were involved in the price manipulation in the two scrips. The brief facts regarding the two companies and manner of price manipulation is as follows:
- Priyans Saree Industries Ltd. (PSIL) and Hindustan Continental Ltd. (HCL) are Indore based companies. While PSIL is listed at ASE and MPSE, HCL is listed at ASE, MPSE and BSE. However, all the three exchanges have reported that the companies are not complying with the listing conditions. In pursuance, trading in the scrip of PSIL has been suspended by ASE w.e.f. July 24, 2003. Trading in the scrip of HCL was been suspended by BSE w.e.f. February 05, 2001. ASE suspended the trading in the scrip of HCL w.e.f August 7, 2003. Also, there was no trading in the shares of the two companies at MPSE during the period of investigation. As such, during the period of investigation the scrips were trading only at ASE.
- During the course of inspection in the case of low cap stocks, SEBI officials had visited ASE on 07-01-2003. It was observed that the scrip of PSIL was infrequently traded at ASE. But the price of the scrip went up from Rs 112 on 27.03.2002 to Rs 350 on 18.07.2002. After this, there was a stock split from Rs 10 to Rs 2. Thereafter price went up to Rs 107.75 on 06.09.2002. The price of the scrip went up in 25 trading sessions during the period March 27-September 06, 2002 with thin volumes. MPSE reported nil trading in this scrip during the period.
- Subsequently, ASE submitted that owing to abnormal trading pattern being viewed in the scrip of PSIL, it had suspended trading in the scrip from July 24, 2003. At the same time, inspection of M/s Jaisharefin Ltd., member ASE was conducted by SEBI through M/s Lahoti & Lahoti, Chartered Accountants. The inspection team had reported abnormal trades in scrips like Hindustan Continental Ltd. (HCL) and Priyans Saree Industries Ltd. (PSIL) during the period 16.10.2002-05.08.2003.
- Under such circumstances, SEBI initiated investigations in the two scrips of PSIL and HCL.
- As stated above, inspection of low cap stocks being traded at ASE was done by SEBI officials. The period under their reference was March, 01, 2002 to September 30, 2002. Later when M/s Lahoti & Lahoti, Chartered Accountants inspected M/s Jaisharefin Ltd., member ASE their period of reference was 16.10.2002-05.08.2003. Also, ASE suspended trading in the scrip of PSIL from July 24, 2003. Keeping all these factors into consideration, following periods of SEBI investigation were demarcated for the two scrips:
A) For PSIL: 01-03-2002 to 24-07-2003
B) For HCL: 16.10.2002-05.08.2003
7. Also, in the matter of PSIL, investigation period was further divided into two sub-periods owing to the fact that two different trading patterns were observed during the two sub-periods. The two sub-periods are as follows:
Period I: From 01.03.2002 to 30.09.2002
Period II: From 16.10.2002 to 24.07.2003
8. The scrip of PSIL was infrequently traded at ASE. But the price of the scrip went up from Rs 112 on 27.03.2002 to Rs 350 on 18.07.2002. After this, there was a stock split from Rs 10 to Rs 2. Thereafter price went up to Rs 107.75 on 06.09.2002. The price of the scrip went up in 25 trading sessions during the period March 27-September 06, 2002 with thin volumes. As against this, the price of the scrip was Rs 103/- on 03.01.2003 and fell to Rs 3/- on 24.07.2003 on ASE, the day the scrip was suspended for trading. ASE reported total volume of 44600 during 01.03.2002 to 30.09.2002 and 1173310 during the period 01.01.2003 to 24.07.2003. Price Volume data is enclosed at Annexure A.
9. ASE had reported nil trading from October 16, 2002 to February 05, 2003 in the scrip of HCL. The price of this scrip on ASE had moved from Rs 1.40 (Closing Price on 05.02.2003) to Rs 6.75 (Closing Price on 21.05.2003). The price had moved from Rs 10.50 as on 29.05.2003 to Rs 34.60 as on 24.07.2003. There was again nil trading from 25.07.2003 to 05.08.2003. ASE reported total volume of 1764300 in the scrip during the period 16.10.2002-05.08.2003. Price Volume data is enclosed at Annexure B.
TRADING IN PSIL- FIRST PERIOD
10. As per the information received from ASE, nine members had done trading in this scrip through 179 trades for a total volume of 44600 shares during the period of investigation, i.e. from 01.03.2002 to 30.09.2002, the major stock brokers being Ratnakar Finstock Pvt Ltd., Neptune Securities Pvt Ltd.and Aagam Securities Pvt Ltd. Following member wise data of the top three members was also submitted by ASE:
|
Member
|
Total Value of the Member
|
%
|
|
Ratnakar Finstock Pvt Ltd
|
3704102
|
53.56
|
|
Neptune Securities Pvt Ltd
|
1638640
|
23.69
|
|
Aagam Securities Pvt Ltd
|
375129
|
5.42
|
|
Total
|
5717871
|
82.67
|
11. As per the trade log submitted by ASE (Annexure A) as also from the subsequent information received from the brokers/clients, following information w.r.t. the abnormal trading pattern in the scrip was collated:
|
Date
|
Seller
|
Buyer
|
Quantity
|
Nature of trade
|
|
|
Broker
|
Client
|
Broker
|
Client
|
|
|
|
|
|
|
|
|
|
|
|
27-Mar
|
Ratnakar
|
Neeta Soni
|
Neptune
|
Dilipbhai Soni
|
150
|
Crossed deals
|
|
Neptune
|
Dilipbhai Soni
|
Ratnakar
|
Neeta Soni
|
150
|
|
Ratnakar
|
Jignesh
|
Ratnakar
|
K K Fintrade
|
5000
|
Self trades
|
|
28-Mar
|
Ratnakar
|
V K Jain
|
Ratnakar
|
K K Fintrade
|
6950
|
Self trades
|
|
9-Apr
|
Aagam
|
Jignesh
|
Aagam
|
Himgiri
|
2500
|
Self trades
|
|
8-May
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
800
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
800
|
|
Aagam
|
Jignesh
|
Aagam
|
Himgiri
|
3000
|
Self trades
|
|
28-May
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
2850
|
Crossed deals
|
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
2850
|
|
29-May
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
1450
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
1450
|
|
3-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
1500
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
1500
|
|
4-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
800
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
800
|
|
6-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
400
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
400
|
|
Aagam
|
Jignesh
|
Aagam
|
K K Fintrade
|
2300
|
Self trades
|
|
11-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
600
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
600
|
|
28-Jun
|
Neptune
|
Abhishek Khare
|
Ratnakar
|
V K Jain
|
25
|
Crossed deals
|
|
Ratnakar
|
V K Jain
|
Neptune
|
Abhishek Khare
|
25
|
|
Ratnakar
|
Jignesh
|
Ratnakar
|
K K Fintrade
|
2000
|
Self trades
|
|
1-Jul
|
Ratnakar
|
V K Jain
|
Ratnakar
|
Dipak Patangia
|
25
|
Self trades
|
|
3-Jul
|
Ratnakar
|
Dipak Patangia
|
Ratnakar
|
V K Jain
|
25
|
Self trades
|
12. As is depicted in the above table, the top three members were involved in huge and continuous structured deals in the form of crossed deals and self trades. Later, when the information regarding their trades were called from the brokers, it was observed that client-wise also these trades were not very much diversified and were restricted to overall only four clients of these brokers. These four clients are V K Jain, Abhishekh Khare, Jignesh Kantilal Shah and you.
13. Taking cue from information submitted by ASE, top three members were asked for information in this regard. Trading details received from the members is as follows:
|
Client
|
Buy
|
Sale
|
Gross
|
Net
|
% Volume
|
Broker
|
|
V K Jain
|
8450
|
15400
|
23850
|
-6950
|
26.74
|
Ratnakar
|
|
Abhishek Khare
|
8425
|
8425
|
16850
|
0
|
18.89
|
Neptune
|
|
K K Fintrade Ltd
|
13950
|
0
|
13950
|
13950
|
15.64
|
Ratnakar
|
|
Jignesh Kantilal Shah
|
0
|
7800
|
7800
|
-7800
|
8.74
|
Aagam
|
|
Jignesh Kantilal Shah
|
0
|
7000
|
7000
|
-7000
|
7.85
|
Ratnakar
|
|
Himgiri Dynamics Ltd
|
5500
|
0
|
5500
|
5500
|
6.17
|
Aagam
|
|
K K Fintrade Ltd
|
2300
|
0
|
2300
|
2300
|
2.58
|
Aagam
|
|
Soni Nita Dilip
|
150
|
150
|
300
|
0
|
0.34
|
Ratnakar
|
|
Dilipbhai Soni-HUF
|
150
|
150
|
300
|
0
|
0.34
|
Neptune
|
|
Dipak Patangiya
|
25
|
25
|
50
|
0
|
0.06
|
Ratnakar
|
|
Total
|
38950
|
38950
|
77900
|
0
|
87.33
|
|
14. From the table given above, those clients who traded more than 10% of the volumes in the scrip were short listed to cull out more information from them. On that basis, V K Jain, Abhishek Khare, Jignesh Kantilal Shah and you were selected. Summons u/s 11C(3) and (5) were issued to these three brokers and their four clients including you for furnishing of information and for your personal appearance before the Investigating Authority. However, many entities including you avoided compliance with summons on one pretext or the other. The summons were even routed through your broker also, but they also met with the same fate. Till date have neither submitted any information/details as required from you nor have appeared in person before the Investigating Authority.
Devious Trading Pattern
15. From the information thus received from ASE, the brokers and a client, analysis of the trading in PSIL shares was done. Prima facie, the trading does not appear to be genuine. The trading is not supported by company’s fundamentals which are not good and the company in itself is non-compliant of the listing agreement entered into with the exchanges. Beside the company vide its letter dated June 07, 2005 has itself stated that there was no business operation in the company and the company has been facing extra paucity of funds from creditors including preferential creditor. It has been further stated by the company that on account of no business and acute financial crunch at the end of the company, there are no personnel to handle the legal compliance for and on behalf of the company.
16. Also, the trades are not diversified and are concentrated around three brokers only and that too among their four clients only including you. Moreover, as elaborated earlier, nearly 100% of the trades were structured either as self trades or as crossed deals and hence were made only to jack up the price of the scrip. The brokers/clients including you have successively put the orders at increasing rates and in the process have artificially jacked up the price of the scrip. At large, the three brokers and the clients including you have aided and abetted in making artificial price discovery which is very much against the sound market principles and practices.
Cartel of Brokers & Clients
17. To have the first hand information of all the dealings made during the period of investigation, statements on oath were recorded before the Investigating Authority. During his submissions on January 25, 2006, Mr.Ajay Jayantilal Shah, Director of Ratnakar Finstock Pvt. Ltd. (Annexure C) told the following:
“All these clients were introduced to us by Shri Shailesh Parekh. Shri Parekh is a relative of Shri Jignesh V Shah, Director of Aagam Securities, member ASE. All these clients were new to us and did not trade in any scrip other than PSIL.”
18. Quite similar revelation w.r.t. their clients was made by Shri Jignesh Rameshchandra Shah, Director of Neptune Securities Pvt. Ltd. during his submissions before the IA on January 25, 2006 (Annexure D):
“Dilip Soni was introduced to us by Shri Shailesh Parekh. Abhishek Khare was introduced to us by Dhirenbhai Shah. All these clients were new to us and did not trade in any scrip other than PSIL.”
19. Shri Shailesh Parekh also found mention during the submissions made by Shri Jignesh Kantilal Shah who is, as shown above, one of the major clients in the scrip and was trading as a client through Aagam Securities Pvt. Ltd. Following is the statement made by Shri Jignesh Kantilal Shah on January 24, 2006 (Annexure E):
“We were recommended about buying PSIL shares by Shri Shailesh Parekh, who is known to us. Shri Parekh introduced us to the three brokers Maheshwari Finvest P Ltd., Ratnakar Finstock Pvt. Ltd. and Aagam Securities Pvt. Ltd……………..We only sold the shares of PSIL during 2002. We off loaded total 14800 shares in 2002 through two brokers Ratnakar Finstock Pvt. Ltd. and Aagam Securities Pvt. Ltd. We were again recommended by Shri Shailesh Parekh for selling the shares.”
20. As such, Shri Shailesh Parekh appears to be a common entity who is alleged to have introduced/recommended/instigated the other entities to trade in the scrip of PSIL. Shri Shailesh Parekh, as has been alleged by Ratnakar Finstock Pvt. Ltd. is a relative of Shri Jignesh V Shah, Director of Aagam Securities Pvt. Ltd. Therefore, Shri Shailesh Parekh may be considered to be related entity of Aagam Securities Pvt. Ltd. Here it may be noted that, as described earlier, Aagam Securities Pvt. Ltd. did not cooperate in the investigation proceedings and despite issue of summons avoided furnishing the required information/personal appearance before the Investigating Authority.
Modus Operandi
21. The modus operandi in the whole case may now be described as under:
22. Aagam Securities Pvt. Ltd. (ASPL) formed a cartel of brokers and clients in order to manipulate the market and artificially jack up the prices. The cartel included Ratnakar Finstock Pvt. Ltd. (RFPL) and Neptune Securities Pvt. Ltd. (NSPL) as other brokers. ASPL through its related entity Shri Shailesh Parekh introduced some clients at RFPL and NSPL. Jignesh Kantilal Shah and you were already clients at ASPL and you were also introduced by ASPL at RFPL through its related entity Shri Shailesh Parekh. Thus Jignesh Kantilal Shah and you were the common clients between ASPL and RFPL. Another major client, V K Jain was also introduced at RFPL by ASPL through its related entity Shri Shailesh Parekh. As told by RFPL, all these clients were new and did not trade in any scrip other than PSIL. Moreover, Shri Shailesh Prekh was also known to NSPL as he introduced one of the clients of NSPL. Shri Abhishek Khare was a major client in the scrip and he dealt as a client of NSPL. Therefore, ASPL used their association with Shri Shailesh Parekh to build a cartel of brokers and clients.
23. After forming such a cartel, which included you, in and around March 2002, the 3 brokers, viz. ASPL, RFPL and NSPL started creating artificial volumes in the scrip through abnormal structured deals in the form of circular trades between the 3 brokers or in the form of self trades between the clients of one of the 3 brokers themselves. The cartel in the process continuously put the orders at constantly increasing rates and thus not only created artificial volumes but also jacked up the price of the scrip of PSIL. Here it may be noted again that the scrip of PSIL was not at all backed by any strong fundamentals and in fact was a non-compliant of the listing agreement of the exchanges.
TRADING IN PSIL (SECOND PERIOD) & IN HCL
24. ASE reported that during the second period of investigation in the scrip of PSIL, i.e. during 01.01.2003 to 24.07.2003 only one member, viz. M/s Jaisharefin Ltd. was purchasing as well as selling, thereby raising the volume traded in this scrip with corresponding fall in price of the scrip.
25. Similarly, ASE reported that during the period of investigation in the scrip of HCL, i.e. during 16.10.2002-05.08.2003 only one member, viz. M/s Jaisharefin Ltd. was purchasing as well as selling, thereby raising the volume traded in this scrip with corresponding rise in price of the scrip.
Inspection of Jaisharefin Ltd.
26. During inspection by the M/s Lahoti & Lahoti, Chartered Accountants abnormal trades in scrips like HCL and PSIL were observed between the period 16.10.2002-05.08.2003.
27. During the entire period of inspection, all the buy/sell orders were placed by the broker, M/s Jaisharefin Ltd for different clients. Generally, the orders of purchases and sales were punched from the same terminal of M/s Jaisharefin Ltd between Sunil Shares & Stock Pvt. Ltd. and you.
28. The Inspection Report of Jaisharefin Ltd had stated that:
a. Almost similar Modus Operandi has been adopted for trading in HCL and PSIL
b. Abnormal trades in scrips like HCL and PSIL were observed between the period 16.10.2002-05.08.2003.
c. During the entire period, all the buy/sell orders were placed by the broker, M/s Jaisharefin Ltd for different clients.
d. Generally, the orders of purchases and sales were punched from the same terminal of M/s Jaisharefin Ltd between Sunil Shares & Stock Pvt. Ltd. and you.
e. The broker has been issuing contract notes for a large number of unreported internal trades in scrips like Reliance, Satyam, Tisco, Zee TV, SBI and L & T.
f. Such abnormal trades may be to accommodate clients for fake capital gains bills and to allow badla trading among clients.
g. The broker did not collect upfront margin and did not make payments to clients within prescribed time limit.
h. Deficiencies were found in maintenance of client agreement and client registration forms.
i. Contract notes did not bear preprinted serial numbers and were not acknowledged by the clients. Even brokerage was not charged on all internal trades.
j. The broker did not mention unique client code during client registration and client trades.
k. The broker opened several fictitious client accounts for accommodating fake capital gain bills.
l. The broker entered into proprietor trading under different client codes.
m. The broker was also non-supportive in providing the information. When the broker came to know that his irregularities has been noticed he turned out to be totally non co-operative and snatched away some of the working papers and ledger provided to the inspection team for inspection.
n. On several reminders and telephonic calls, the broker had informed that he is in the process of removing all internal trade transactions and such fake transactions and as soon as he finishes the same, he shall provide them with fresh information.
DEVIOUS TRADING IN THE TWO SCRIPS
29. The demat statement as submitted by JSL did not support the trading details as provided in the sauda register/contract note details as submitted by JSL to SEBI. For example, March 31, 2003 (which corresponds to settlement no.2003002 as revealed from the contract notes submitted by JSL) is taken as the reference date on which date ASE reported 185000 volumes and JSL submitted 643625 volumes in HCL. Of the 643625 shares, JSL entered into market transactions for 185000 shares and the rest 458625 shares were off-market or as JSL told “principal to principal” transactions.
30. Inspite of being a registered broker JSL was avoiding the market mechanism to trade. eg. on March 31, 2003 JSL was involved in market transactions for only about 30% of the trades, JSL made 70% of the trades through principal to principal transactions. JSL did not report these principal to principal transactions to ASE and in the process violated ASE bylaws. Since the transactions did not come to the notice of the exchange it would be appropriate to call them off market transactions.
31. The sauda register/contract note details and the details as given in the demat statement of JSL were cross checked to ascertain the settlement mechanism as applied by JSL for its trades made on March 31, 2003. Copy of demat statement of JSL for settlement no. 2003002 is enclosed at Annexure F. Also, copy of the sauda register for March 31, 2003 is enclosed at Annexure G.
32. On comparing the two documents (also contract notes) it is evident that the market transactions of 185000 shares were settled as pay-in and pay-out on the third and fourth day respectively. But regarding settlement of off-market transactions, it was observed that the settlement of securities have taken place after several days of trades starting from the seventh day, i.e. April 07, 2003 to as late as thirty eighth day, i.e. May 08, 2003. Also, the contract notes submitted by JSL reveal that they have charged brokerage at a flat rate of Rs. 0.01 per share from the clients irrespective of the price of the scrip and whether the trades were market trades or off market trades. It may be mentioned here that the contract notes issued by JSL did not bear any printed serial numbers.
33. Similar was the modus operandi adopted by JSL in the trades of PSIL shares and quite similar were the discrepancies found in the documents submitted by JSL in the scrip of PSIL. Copy of sauda register in the scrip for the date March 31, 2003 is enclosed at Annexure H.
34. JSL was asked to explain about all the discrepancies. Copy of the statement on oath of Shri Mayukh Pandya, authorised representative of JSL is enclosed at Annexure I. During their statement recording before Investigating Authority, JSL accepted that they have not reported principal to principal trades to ASE. JSL was also asked to explain about the settlement mechanism adopted by them in the scrips of HCL and PSIL considering the fact that several discrepancies as described above were found in the documents submitted by JSL. JSL could not provide details regarding their settlement mechanism and chose not to comment on the query thus raised. The fact that JSL remained mum on this matter further strengthens the allegation that JSL did not have any proper settlement mechanism and that they entered into several fake trades without actual transfer of securities from/to the clients.
35. These malafide trading practices of JSL are even confirmed by the fact that during their inspection when JSL came to know that their irregularities has been noticed by the inspection team JSL turned out to be totally non co-operative and snatched away some of the working papers and ledger provided to the inspection team for inspection.
DUBIOUS PRICE RISE IN THE TWO SCRIPS
36. ASE had reported nil trading from October 16, 2002 to February 05, 2003 in the scrip of HCL. The scrip was trading in thin volumes in the range of 100-7000 and the price moved in the range of Rs 1.35 to Rs. 4.75(Closing Price) during the period 05.02.2003 to 19.03.2003. Suddenly there was spurt in volumes and there was heavy trading in this scrip. From 22.03.2003 to 11.04.2003, the scrip was trading between Rs 1.90 to Rs 2.75 with volume in the range of 18000-397500. The highest volume recorded in this scrip was 397500 on 26.03.2003 during the period of Investigations. Also the highest no of trades i.e. 66 was executed on the same day. The price had moved between Rs 2.50 to Rs 6.75 with volumes 100-10000 between 21.04.2003 and 21.05.2003. The price was taken from Rs 10.50(Opening price on 29.05.03) to Rs 34.60 as on 24.07.2003 i.e. 329.52% increase. The price of this scrip on ASE had moved from Rs 1.40 (Closing Price on 05.02.2003) to Rs 6.75 (Closing Price on 21.05.2003). The price had moved from Rs 10.50 as on 29.05.2003 to Rs 34.60 as on 24.07.2003. There was again nil trading from 25.07.2003 to 05.08.2003. ASE reported total volume of 1764300 in the scrip during the period 16.10.2002-05.08.2003. Thus, during the period of investigation, i.e from 16.10.2002 to 05.08.2003 the price of the scrip had moved from Rs. 1.35 to Rs. 34.60, i.e. the scrip witnessed a price rise of about 26 times or 2500%.
37. Similarly, ASE had submitted the trading details in this scrip of PSIL for the period from 01.01.2003 to 24.07.2003 i.e. the date on which ASE suspended this scrip for indefinite period. The price of the scrip was Rs 104/- on January 03, 2003 and fell to Rs 3/- on July 24, 2003. Thus, during the period of instigation the price of the scrip fell by around 100%. It may be mentioned here that this steep fall in price was not accompanied by any corporate announcement or market information and that the scrip saw huge fluctuations in volume during the period.
PROMINENCE OF JSL AND ITS CLIENTS IN TRADING IN THE TWP SCRIPS
38. It may be mentioned here that during the whole period of investigation only one broker, viz. JSL was involved in the trading of HCL shares and was placing orders both on the buy as well as on the sell side for their clients. Therefore, it can be asserted that JSL was well aware about the price at which the orders were being placed both by the buying and the selling clients and with this knowledge at hand JSL used to place the orders for the client. Also, two of the clients of JSL, viz. Sunil Shares & Stock Pvt. Ltd. and you were the only major clients. Together you both created volume of 4580377 shares of HCL out of the total volume of 5637678 shares as submitted by JSL. Thus you two created more than 80% of the total volumes as reported by JSL. It may be noted here that you were a major net seller in the scrip while Sunil Shares & Stock Pvt. Ltd. only squared off their trades. Also, from the trade order logs, it is observed that the orders were continuously being placed at increasing price.
39. As in HCL, in the scrip of PSIL also during the whole period of investigation only one broker, viz. JSL was involved in the trading of HCL shares and was placing orders both on the buy as well as on the sell side for their clients. Therefore, it can be asserted that JSL was well aware about the price at which the orders were being placed both by the buying and the selling clients and with this knowledge at hand JSL used to place the orders for the client. Also, two of the clients of JSL, viz. Sunil Shares & Stock Pvt. Ltd. and you were the only major clients. Together you both created volume of 3142320 shares of PSIL out of the total volume of 5877120 shares as submitted by JSL. Thus you two created more than 50% of the total volumes as reported by JSL. It may be noted here that you were a major net seller in the scrip while Sunil Shares & Stock Pvt. Ltd. were a major buyer in the scrip.
40. From the above facts, the modus operandi of JSL and their two clients including you is very much apparent. JSL, Sunil Shares & Stock Pvt. Ltd. and you were hands in glove. JSL had a huge clientele and taking undue benefit of this JSL convinced their clients to trade in the two scrips. Simultaneously Sunil Shares & Stock Pvt. Ltd. and you also bought and sold huge chunk of shares and tried to create interest in the scrips. It may be mentioned here that besides Sunil Shares & Stock Pvt. Ltd. and you, around 250 other clients of JSL also dealt in the scrip. It shows that while Sunil Shares & Stock Pvt. Ltd. and you created 50-80% of the volumes, 250 other clients created merely 20-50% of the volumes in the two scrips. Also on most of the occasions either Sunil Shares & Stock Pvt. Ltd. or you were on one side of the transaction and any of the 250 clients was on the other side of the transaction. This fact clearly depicts the interest of Sunil Shares & Stock Pvt. Ltd. and you in the two scrips and thus you manipulated the market in collusion with JSL to jack up the prices of the two scrips.
DISCREPANCIES REGARDING CLIENT REGISTRATION
41. To ascertain more about the modus operandi and motive of Sunil Shares & Stock Pvt. Ltd. and you behind their trades in HCL and PSIL, letters, reminders and summons were issued to you, but you never cooperated during the investigation proceedings and neither submitted any information nor appeared before the Investigating Authority for your statement recording. The member client agreement form as submitted by JSL for the two clients was checked and it was found that you were registered with JSL on August 11, 2003 only while you were trading through JSL well before that date. JSL was questioned in this regard to which they could not provide any answer and chose to remain mum. JSL was asked about the due diligence exercised by them during the introduction and registration of the two clients. To this JSL told that:
“Sunil Shares and K K Fintrade were registered with us on August 11, 2003. These clients traded only in the scrips of HCL and PSIL and never traded with us for any other scrip. These clients were self-introduced……….It may be quoted here that as per our knowledge Sunil Shares and K K Fintrade are related entities……….These clients approached us directly and asked that they were interested in trading through us. We were convinced and got them registered with us.”
42. The above submission of JSL clearly shows that JSL allowed you to trade through them without firstly getting you registered. Also JSL did not exercise any due diligence during the introduction and registration. Though you were new to JSL and were self introduced, still JSL allowed you to trade for such huge amounts in the scrips of HCL and PSIL. It may be added here that as per the submission of JSL they have only two terminals at their office premises only and they have punched all the orders from these terminals only. Under these circumstances, it can be more accurately said that there is no question of the broker not being aware about the prices being quoted by you and the broker must be definitely having knowledge of the wrong doings being done by you. To repeat, JSL has aided and abetted Sunil Shares & Stock Pvt. Ltd. and you in manipulating the market and the price of the scrips. In fact, you three were hands in glove and had taken market for a ride.
YOUR NON-COOPERATION DURING INVESTIGATION PROCEEDINGS
43. Your role in price and market manipulation in the two scrips has already been spelt out in the preceding paragraphs. Here it may be added that to ascertain more about your modus operandi and motive behind your trades in HCL and PSIL, letters, reminders and summons were issued to you, but you never cooperated during the investigation proceedings and neither submitted any information nor appeared before the Investigating Authority for your statement recording.
Following table reveals the non-cooperation shown by you during investigation proceedings:
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Ref No. & Date
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Nature and Contents
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Acknowledgement and Reply
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IVD/ID3/PKB/CDM/HCL/1711/04 dated August 03, 2004
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Letter calling for related information
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Letter received on August 09, 2004. No reply received.
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IVD/ID3/PKB/AA/HCL/31787/05 dated January 24, 2005
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Summons u/s 11C(3) of SEBI Act, 1992 calling for related information
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Letter received on February 03, 2005 through Jai Share Fin Ltd. No reply received. Non-compliance with the summons
|
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IVD/ID3/PKB/AA/HCL/31788/05 dated January 24, 2005
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Summons u/s 11C(3) of SEBI Act, 1992 calling for related information
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Letter received on February 03, 2005 through Jai Share Fin Ltd. No reply received. Non-compliance with the summons
|
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IVD/ID3/PKB/AA/HCL-PSIL/50818/05 dated September 30, 2005
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Summons u/s 11C(3) and (5) of SEBI Act, 1992 calling for related information and for personal appearance before the Investigating Authority
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Letter pasted by MPSE on October 15, 2005 at the premises of K K Fintrade Ltd.. No reply received. Non appearance before the Investigating Authority. Non-compliance with the summons
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VIOLATIONS MADE BY YOU
44. You were hands in glove with JSL and took market for a ride. Also, you were a major client during the first period of investigation in the scrip of PSIL and had dealt through two brokers. You had entered into such transactions which do not from any perspective appear to be according to sound market practices. You had tried to manipulate the market and in the process caused undue variations in the price and volume of the two scrips of HCL and PSIL. You had tried to create artificial market in the scrips. You did not cooperate with the investigation proceedings and never submitted any information which was called from you. You also did not attend the proceedings of examination on oath before the Investigating Authority. In the process, you have not complied with the summons issued to you under section 11C (3) and 11C (5) of SEBI Act 1992. The avoidance of investigation proceedings by you not only caused delay in investigation proceedings but also made it impossible to find out the relationship, if any, between any of the other entities involved in the trading of the scrip of HCL and PSIL. Also, non-cooperation by you with the investigation proceedings further strengthens the charges against you.
45. Thus, it is alleged that you had dealt in securities in a fraudulent manner. It is also alleged that you had indulged in activities which were calculated to create a false and misleading appearance of trading on the securities market. Also, you had indulged in activities which resulted in reflection of prices of securities based on transactions which were not genuine
trade transactions and had entered into purchase and sales of securities, without the intention of transferring of the beneficial ownership, but intended to operate only as a device to inflate and cause fluctuations in the price of the securities. It is also alleged that you had engaged in acts which had operated as fraud in the dealing of securities.
46. You have, thus, violated the provisions of section 3, 4(a), (b), (c) and (d) and 6 (a) of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.
47. In view of these violations, you are therefore called upon to show cause as to why suitable directions including issuing such directions restraining you from buying, selling or dealing in securities for a specified period should not be issued to you u/s 11(4) read with section 11B of the SEBI Act,1992 and regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
48. Your reply, supported by necessary documentary evidence which you may like to adduce in support, should reach the undersigned within 21 days from the date of receipt of this letter failing which it will be presumed that you have no explanations to offer in the said matter and SEBI would be constrained to pass such orders as per law.
P K BINDLISH
Encls.:
- Price Volume data w.r.t. the scrip of PSIL - Annexure A.
- Price Volume data w.r.t. the scrip of HCL - Annexure B
- Trade log submitted by ASE - Annexure A
- Submissions on January 25, 2006 by Mr.Ajay Jayantilal Shah, Director of Ratnakar Finstock Pvt. Ltd. - Annexure C
- Submissions on January 25, 2006 by Shri Jignesh Rameshchandra Shah, Director of Neptune Securities Pvt. Ltd. - Annexure D
- Submissions on January 24, 2006 by Shri Jignesh Kantilal Shah - Annexure E
- Copy of demat statement of JSL w.r.t. the scrip of HCL - Annexure F
- Copy of the sauda register of JSL w.r.t. the scrip of HCL - Annexure G
- Copy of the sauda register of JSL w.r.t. the scrip of PSIL - Annexure H
- Statement on oath of Shri Mayukh Pandya, authorised representative of JSL - Annexure I