2010 (2) TMI 1273 - AT - SEBI

Summary

Issues Involved:
1. Alleged violation of SEBI Regulations.
2. Allegation of price manipulation by the appellants.
3. Appellant's defense against the allegations.
4. Analysis of the appellant's trading behavior.
5. Examination of the financial fundamentals of the company.
6. Tribunal's final decision on the charges.

Summary:

1. Alleged Violation of SEBI Regulations:
The appellants were accused of violating Regulation 4(a), (b), and (c) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, and Regulation 4(1), 4(2)(a) & (e) of SEBI Regulations, 2003. They were restrained from dealing in the securities market for one year.

2. Allegation of Price Manipulation:
A show cause notice dated March 18, 2008, alleged that the appellants influenced the price of Brijlakshmi Leasing & Finance Limited's scrip upwards by purchasing large quantities of shares at higher prices, creating artificial volumes in an illiquid scrip.

3. Appellant's Defense:
The appellant denied all allegations, stating that merely purchasing shares does not imply price manipulation. He argued that he was not on both sides of the trades, had no connection with the counterparty, and all trades were delivery-based through the stock exchange mechanism.

4. Analysis of the Appellant's Trading Behavior:
The whole time member found the appellant's behavior unusual, noting that orders were placed at prices higher than the last traded price (LTP). The member concluded that the appellant was acting to artificially prop up the prices, despite no evidence of synchronized/circular/reversal trading or collusion with other parties.

5. Examination of the Financial Fundamentals of the Company:
The Tribunal examined the financial statements of the company, noting that it showed a declining trend in losses and turned profitable from 2002-03. The company's net worth was on an upswing, indicating that an informed investor might not perceive any red flags. The appellant contended that the company's fundamentals justified his investment.

6. Tribunal's Final Decision:
The Tribunal concluded that the charges of manipulation were not established. It was noted that placing buy orders at prices higher than the LTP does not necessarily indicate manipulation. The Tribunal referenced previous cases (Ketan Parikh v. SEBI and Jagruti Securities Limited v. SEBI) to support its decision. The appeals were allowed, and the impugned order was set aside with no order as to costs.