2014 (3) TMI 1172 - AT - SEBI

SEBI Violation - price escalation of scrips - appellant was found guilty of manipulating the price of the scrip - imposed a monetary penalty of ₹ 5 lac under Section 15HA of the SEBI Act for violation of Regulation 4(1) and 4(2)(e) of the FUTP Regulations - HELD THAT - The appellant executed trades during the period December 2003 to January 2004 whereas AIL s annual results came out only after March 2004, and the December 2003 quarterly results were published only on January 2004 as has been noticed by the adjudicating officer in paragraph 21 of the impugned order. From the nature of the trading, it is clear that the appellant has sought to create a misleading impression that a large number of persons were trading in the scrip. This lends support to the finding of the adjudicating officer in paragraph 20 of the impugned order. It must not be forgotten that every trade establishes the price of the scrip and the noticee s trading at higher than LTP resulted in the price of the scrip going up and were done with a view to set the price at a desired level and thereby influencing the innocent/gullible investors. By purchasing at a higher price in most of his trades, the noticee had given the wrong impression about the price of the scrip in the market. It is an accepted state of affairs that in cases of manipulation of the volume and / or price of a particular scrip, it is usually an arduous task to obtain direct evidence. However, the analysis of the trade and order logs as undertaken hereinabove, establishes the malafide intention of the appellant. Therefore, in view of the above factual position, we do not find any merit in the appeal and the same is dismissed.

Summary

Issues:
Violation of SEBI regulations - Manipulation of securities price

Analysis:
The judgment by the Securities Appellate Tribunal, Mumbai, involved an appeal against an order for violating SEBI regulations related to fraudulent and unfair trade practices in the securities market. The appellant was found guilty of manipulating the price of a particular scrip, leading to an abnormal rise followed by a sharp fall in its price. The investigation revealed that the appellant engaged in trades that artificially increased the price of the scrip to misguide the public. The appellant traded in a manner that gave a false representation of the scrip's price, leading to a potential rise in its value through misleading signals to investors.

The appellant's defense of trading based on the company's improved performance was refuted as the trades occurred before the disclosure of the financial status. The tribunal analyzed the trading data, highlighting instances where the appellant placed orders above the Last Traded Price (LTP) to create a misleading impression of the scrip's liquidity in the market. The judgment emphasized that every trade impacts the scrip's price, and the appellant's actions aimed to influence innocent investors by setting the price at a desired level through manipulative trading practices.

The tribunal dismissed the appellant's reliance on a previous judgment, emphasizing the lack of material to support the appellant's claims. The analysis of trade and order logs established the appellant's malafide intentions in manipulating the price of the scrip. Despite the challenging nature of proving manipulation, the tribunal concluded that the appellant's trading practices demonstrated a deliberate effort to influence the price of the securities through misleading trades. Consequently, the appeal was dismissed, and no costs were awarded.

In conclusion, the judgment underscores the importance of adhering to SEBI regulations to prevent fraudulent and unfair trade practices in the securities market. It highlights the tribunal's scrutiny of trading activities to identify manipulative schemes aimed at misleading investors and influencing security prices. The detailed analysis of the appellant's trades and their impact on the scrip's price formed the basis for the tribunal's decision to uphold the penalty imposed for violating SEBI regulations related to price manipulation.