2020 (2) TMI 1420 - AT - SEBI

Violation of SEBI PFUTP Regulations, 2003 - appellants created a misleading appearance of trading and was manipulating the price of the scrip to help offload the shares they were holding - penalty imposed under Section 15 HA of the SEBI Act, 1992 - HELD THAT - Looking at the pattern of trading done by the appellants and the fact that the appellants have derived considerable financial benefit through that particular scheme or nature of trading we are of the view that the trading pattern adopted by the appellants is of a manipulative and unfair nature and would squarely fall within the ambit of the PFUTP Regulations. The pattern of trade clearly establishes this as it is on 49 occasions that the appellants sold 1 to 5 shares, mostly one share, when in fact the buy orders available in the system was much higher. This behavior cannot be justified in terms of normal rational expectations of a seller. It is on record that the appellants were among the top two net sellers during the relevant period. When the appellants were holding a large number of shares (Appellant No. 1 15045 shares and Appellant No. 2 1009 shares), their selling miniscule quantity of one share each on more than four dozen occasions is nothing but a strategy of manipulation and unfairly benefiting by off-loading the entire shareholding after raising the price to considerable levels. Penalty imposed on the appellants is on the higher side, particularly, when the entire price rise in the scrip is not on account of the trading done by the appellants. In fact, we note that even when the appellants were not trading between December 24, 2013 to February 17, 2014 the price of the scrip had gone up from ₹ 152 to 182. Similarly, on intermittent dates as well there were trading by others which raised the price as the appellants traded on only 55 days out of the investigation period or even the relevant period which runs into 14 months and 7 months respectively. Therefore, while calculating the profits earned by the appellants and in deciding the quantum of penalty based on the same these facts should have been taken into account as mitigating factors beyond what is apparently done by the AO. While upholding the impugned order on merit we reduce the amount of penalty on Appellant No. 1 from ₹ 45 lakh to ₹ 20 lakh and from ₹ 5 lakh imposed on the Appellant No. 2 to ₹ 2 lakh.

Summary

Issues:
Violation of SEBI Regulations - Manipulative Trading Practices

Analysis:
The judgment involves an appeal challenging an order by the Adjudicating Officer of SEBI, finding the appellants guilty of violating SEBI regulations related to fraudulent and unfair trade practices in the securities market. The appellants, individual traders, were found to have manipulated the price of a particular scrip to offload their shares. The investigation period revealed that the appellants executed numerous trades, often in small volumes, at prices above the Last Traded Price (LTP), creating a misleading appearance of trading. The adjudication proceedings were initiated, and a penalty was imposed on both appellants under the SEBI Act.

The crux of the charge against the appellants was that they strategically placed sell orders in small quantities at increasingly higher prices over multiple days, contributing to a total positive impact on the Last Traded Price. The appellants argued that their trading activities were based on the increasing price trend of the scrip and denied any manipulative intent. They contended that they were merely responding to buy orders available in the system and had no connection with other entities or fund transfers.

The Tribunal considered the arguments presented by both parties. While acknowledging that selling above the LTP may not always be manipulative, the Tribunal found the appellants' trading pattern to be manipulative and unfair. The appellants' strategy of offloading shares in minimal quantities despite holding significant shares and benefiting financially from the price manipulation was deemed violative of the regulations. The Tribunal noted instances where the appellants sold substantial shares at elevated prices, further supporting the manipulative nature of their trading activities.

The Tribunal also critiqued the Adjudicating Officer's failure to analyze the buy side of the transactions in detail. Despite this, the Tribunal upheld the decision on merit but reduced the penalty imposed on the appellants. Considering mitigating factors such as the overall price rise not solely attributed to the appellants' trading and the limited trading days during the investigation period, the Tribunal reduced the penalties imposed on both appellants to ensure justice. The appellants were directed to pay the revised penalties within a specified timeframe, with no additional costs imposed.