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2014 (12) TMI 1419 - Board - SEBIManipulative, fraudulent and unfair trade practices - Shares allotted on preferential basis - 46 allottees made a collective profit of ₹313.01 Crore on their total investment of ₹12.99 crore, a substantial return of approximately 2309 % on their investment in a period of 18 months (including the lock in period) - entire modus operandi of allotting preference shares at a premium, announcing a stock split and then bringing in connected entities to provide exit was a scheme devised to rake in ill-gotten gains HELD THAT - Preferential allotment was used as a tool for implementation of the dubious plan, device and artifice of Radford Group Suspected Entities and preferential allottees. The manipulation in the traded volume and price of the scrip by a group of connected entities has the potential to induce gullible and genuine investors to trade in the scrip and harm them. As such the acts and omissions of Radford Group Suspected Entities and allottees are fraudulent as defined under regulation 2(1)(c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ( PFUTP Regulations ) and are in contravention of the provisions of regulations 3(a), (b), (c) and (d) and 4(1), 4(2)(a), (b), (e) and (g) thereof and section 12A(a), (b) and (c) of the SEBI Act, 1992. As directors of Radford during the relevant time (i.e. Prakash Bhawarlal Biyani, Manish Nareshchandra Shah, Rajesh Kumar Maheshwari and Nitin Shivratan Murarjka), being in control of the day to day affairs of Radford, had the knowledge of its acts and omissions. They were also under an obligation to ensure that acts and transactions of Radford were not in violation of any of the applicable provisions of SEBI Regulations or other applicable laws. Therefore, prima facie find that these directors were responsible for Radford 's acts and omissions in this case. A detailed investigation of the entire scheme employed in this case is necessary to find out the role of any other entity therein including LTP contributors, Suspected entities, connection amongst the concerned entities and the ultimate owners of funds used for manipulating the price of the scrip. Therefore, while SEBI would investigate into the probable violations of the securities laws, the matter may also be referred to other law enforcement agencies such as Income Tax Department, Enforcement Directorate and Financial Intelligence Unit for necessary action at their end as may be deemed appropriate by them. SEBI strives to safeguard the interests of a genuine investor in the Indian securities market. The acts of artificially increasing the price of scrip mislead investors and the fundamental tenets of market integrity get violated with impunity due for such acts. Under the facts and circumstances of this case, I prima facie find that the acts and omissions of Radford Group Suspected Entities and allottees as described above is inimical to the interests of participants in the securities market. Therefore, allowing the entities that are prima facie found to be involved in such fraudulent, unfair and manipulative transactions to continue to operate in the market would shake the confidence of the investors in the securities market. Considering these facts and the indulgence of a listed company in such a fraudulent scheme, plan, device and artifice as prima facie found in this case, this is a fit case where, pending investigation, effective and expeditious preventive and remedial action is required to be taken by way of ad interim ex -parte in order to protect the interests of investors and preserve the safety and integrity of the market. In view of the foregoing, in order to protect the interest of the investors and the integrity of the securities market, in exercise of the powers conferred upon me in terms of section 19 read with section 11(1), section 11 (4) and section 11B of the SEBI Act, 1992, pending inquiry/investigation and passing of final order in the matter, hereby restrain the named persons/entities from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner, till further directions.
Issues Involved:
1. Manipulative Trading and Market Manipulation 2. Preferential Allotment and Stock Split 3. Artificial Price Inflation and Volume Increase 4. Fraudulent Scheme and Misuse of Securities Market 5. Connection Among Entities and Misuse of Stock Exchange System 6. Long Term Capital Gains (LTCG) and Tax Evasion 7. Role of Directors and Promoters 8. Preventive and Remedial Actions by SEBI Issue-wise Detailed Analysis: 1. Manipulative Trading and Market Manipulation: The judgment highlights that certain entities manipulated the trading of Radford Global Limited shares. The modus operandi involved pushing the share price up during the lock-in period by contributing to positive Last Traded Price (LTP) through first trades with negligible volumes. This manipulation was primarily carried out by entities connected to Radford, which created an artificial demand and inflated the share price. 2. Preferential Allotment and Stock Split: Radford allotted 91,00,000 equity shares on a preferential basis to 48 entities, some of which were directly or indirectly connected to Radford. Just before the expiry of the lock-in period, Radford announced a stock split, reducing the face value of shares from Rs. 10 to Rs. 2, increasing liquidity and enabling preferential allottees to exit with significant profits. 3. Artificial Price Inflation and Volume Increase: The price of Radford shares increased by 7442% during Pre-Patch I, which was not justified by the company's fundamentals or financials. The volume of shares traded also increased astronomically during Patch I due to matched trading among Radford Group and Suspected Entities. This artificial inflation of price and volume was aimed at creating a profitable exit for the preferential allottees. 4. Fraudulent Scheme and Misuse of Securities Market: The entire scheme of preferential allotment, stock split, and subsequent trading was devised to generate ill-gotten gains. The entities involved misused the securities market to artificially inflate the share price and volume, thereby misleading genuine investors and violating market integrity. 5. Connection Among Entities and Misuse of Stock Exchange System: The judgment establishes the connection among Radford, preferential allottees, and Radford Group & Suspected Entities through common addresses, directors, and shareholders. These entities acted in concert to manipulate the market and generate fictitious Long Term Capital Gains (LTCG), which are tax-exempt. 6. Long Term Capital Gains (LTCG) and Tax Evasion: The preferential allotment was used as a tool to implement the fraudulent scheme, enabling the allottees to generate fictitious LTCG. The fund brought in by way of preferential allotment was utilized for purposes other than those disclosed, and the trading among connected entities created artificial volumes and price inflation to facilitate the scheme. 7. Role of Directors and Promoters: The directors of Radford during the relevant time were found to be responsible for the company's acts and omissions. They had knowledge of the fraudulent scheme and were under an obligation to ensure compliance with SEBI regulations and other applicable laws. 8. Preventive and Remedial Actions by SEBI: To protect the interests of investors and market integrity, SEBI restrained the involved persons/entities from accessing the securities market and dealing in securities till further directions. This order is without prejudice to SEBI's right to take any other action against the entities in accordance with the law. The entities were given an opportunity to file objections and avail themselves of a personal hearing before SEBI. Conclusion: The judgment concludes that the entire scheme involving Radford, preferential allottees, and connected entities was a fraudulent device to manipulate the securities market, generate fictitious LTCG, and evade taxes. SEBI's preventive and remedial actions aim to protect investors and maintain market integrity.
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