2024 (8) TMI 856 - Board - SEBI

Trading based on the stock recommendations given by Guest Experts appearing on Zee Business Channel - Sharing of non-public information regarding recommendations, by Guest Experts to Profit Makers in advance - Pattern of correlation of trades of suspect entities with recommendations made by guest experts - HELD THAT - Profit generated in the accounts of the Profit Makers are quite substantial, when compared with the profits on trades otherwise executed in the accounts of these Profit Makers. It is also seen that from the trades that are observed to have been executed based on the advantage of advance receipt of information about recommendations of Guest Experts, the Noticees have collectively earned substantial profit to the tune of INR 7,41,29,648 from 1047 instances, constituting 54% of the total profit earned during the relevant period. From the above, it can be seen that a considerable portion of their respective profit was earned through trades based on recommendations vis- a-vis their total trades. Further, Table No. 31 also provides the detailed breakup of the profit earned by the Noticee No. 1 to 5 (Guest Expert wise) and number of instances of trades executed based on the sharing of recommendation by Guest Experts. Sharing of profits amongst Noticees - From the screenshots of WhatsApp Chat, it is seen that there are certain messages shared between Nirmal Kumar Soni and Guest Experts which had picture of currency notes in them (highlighting the serial number of the note). Further, in the statements recorded on January 19, 2023 of Noticee Nos. 1, 11, 12, 14 and 15 (produced in the subsequent paragraph), it has been admitted by Guest Experts that they had a profit-sharing arrangement with Nirmal Kumar Soni for sharing their recommendations with Nirmal Kumar Soni prior to giving the recommendations on Zee Business. Some of the Statements also shows that the amount already paid to the Guest Experts in cash and the balance amount to be paid to them by Nirmal Kumar Soni. There was an arrangement between Nirmal Kumar Soni and Guest Experts to share the wrongful gain earned through recommendation based trades. The evidence in the form of statement further shows the arrangement entered into amongst Profit Makers and Guest Experts that profit earned through recommendation based trades would be shared among them in terms of the oral agreement. As observed in the course of investigation Nirmal Kumar Soni, having received the information from Guest Experts, had executed trades not only in his own account but also in the accounts of Noticee Nos. 3, 4 and 5. Pursuant to the generation of profit, the same got shared among them as per their understanding. However, in the case of Noticee No. 2, it is observed that after receipt of information from Guest Experts, trades were executed in his own account. Hence, it is held, prima facie, that an amount of INR 7,41,29,648 calculated as per Table No. 30 and 31 is a profit which has been earned by Profit Makers from trades executed on the basis of advance receipt of non-public information of recommendations provided by Guest Experts. Enablers have helped Profit Makers in executing these transactions. A part of the profit has also been shared with Guest Experts. Examination of violation of provisions of SEBI Act and regulations made thereunder - There are evidences of connections amongst Noticees, sharing of advance information about recommendations of Guest Experts with Profit Makers, taking advance position in trades by these Profit Makers based on such advance non-public information. Apart from evidences, these acts of commission have also been admitted by Noticees in deposition made before the investigating authority. These acts are detrimental to the interest of integrity of the securities market and also adverse to the interest of investors who invest based on recommendations of Guest Experts totally unaware of any scheme being employed by them. Further, it has been set out in detail that the unfair gains so earned by Profit Makers have also been shared with Guest Experts which has been admitted under statement on oath and there are evidences of such gains being shared through non-banking channels. Hence, not only Noticees have dealt in securities while in possession of non-public information, they have also devised a scheme to defraud investors in connection with dealing in listed securities. All this seen together would clearly demonstrate that there is a prima facie case of violation of provisions of section 12A of SEBI Act and Regulations 3 and 4 of PFUTP Regulations. This finding is further strengthened in subsequent paragraphs. The act of Profit Makers in trading in securities on the basis of advance information gives them undue, unfair and illegal advantage over investors who otherwise invested in such securities based on recommendation without being aware of the manipulative scheme entered into by Profit Makers and Guest Experts with the help of Enablers. Thus there is a prima facie case of manipulative, fraudulent and unfair trade practice carried out by Noticees which ultimately generated large amount of unlawful gains (approximately INR 7.41Crore) in the accounts of Noticee nos. 1 to 5. Infact, a thorough analysis of facts and legal position lead me to the conclusion that all the five violations listed earlier at para 148 of this order with respect to Section 12A of the SEBI Act and Regulations 3 4 of PFUTP Regulation have been committed in this case. Noticee No. 15 namely Simi Bhaumik, being a registered Research Analyst, falls under the purview of the RA Regulations. As already been seen that Simi Bhaumik shared her recommendations with Partha Sarathi Dhar (registered as spouse in the AOF provided by Bank) before recommending the same on Zee Business thereby facilitating Partha Sarathi Dhar to trade based on such prior knowledge of recommendations. As can be inferred from the evidence gathered during the investigation, the trading instances of Partha Sarathi Dhar were significantly influenced by the advance information provided by Simi Bhaumik - spouse is included as associate in terms of the definition under regulation 2(1)(b) of SEBI (Intermediaries) Regulations. It has been found and recorded above that Partha Sarthi Dhar, spouse of Simi Bhaumik had traded in scrip/contract after receipt of information pertaining to her recommendation to be broadcasted on the Zee Business. It is therefore, held prima facie that Simi Bhaumik has violated provisions of regulation 16(2) of SEBI (Research Analyst) Regulations, 2014 by sharing information with her husband who dealt in those securities and made unfair profits. Need for interim ex-parte order - It is a fit case to pass ad interim ex parte order to insulate the securities market from the mischievous act of Noticees and also to prevent these Noticees in conducting similar activities which are prima facie against the interest of investors as well as against the development of securities market. Further, there is an urgency to protect the wrongful gains from getting siphoned off beyond the regulatory reach. Urgency of this interim ex parte order as Investors education is very important as it empowers investors to protect their own interest. It is important for investors to exercise due diligence before accepting any free flowing advice on TV or social media. There are many experts who are spreading financial literacy in India and empowering investors to take their own decision. Most of the experts fall in this category and are doing a very good job which has resulted in robust securities market that we have today. However, the same cannot be said about a few other experts who take advantage of their mass following to make unfair profits by misguiding innocent investors. This is a fit case to invoke the statutory powers vested in SEBI to pass interim directions against Noticees through this order. Joint and several liability - Noticees are jointly and severally liable for impounding of the proceeds (to the tune of INR 7,41,29,648/-) generated from the trades which are not in conformity with the provisions of securities laws as mentioned in the below table. Such joint and several liability is restricted amongst those Noticees who made these unfair profits, who enabled certain Noticee to make unfair profits or whose recommendations led to such unfair profits. This amount is arrived at based on Table no 30 where details of unlawful gains made by Profit Makers is computed separately for each of them. The amount of wrongful gain for which the Noticees are jointly and severally liable, is accordingly arrived at the below table no 33. It is clarified that the Noticee mentioned at column no. 1 is jointly and severally liable for the amount of wrongful gains, mentioned at column no. 2, along with Noticees mentioned at column 3. Joint and several liabilities of Noticees mentioned at column no. 3 is restricted to the extent of the amount mentioned against their respective names in Table 30. In addition, Nirmal Kumar Soni is also held as joint and several liable for the amount along with SAAR Commodities, Manan Sharecom Private Limited and Kanhaya Trading Limited for the amount mentioned against their respective names. Ex-parte Interim Order - It is a fit case to pass interim directions to insulate the securities market and investors from the mischievous acts of the entities and also to urgently prevent these entities from continuing with their prima facie fraudulent activities while dealing in the securities market. All the prima facie findings recorded in this Order shall be treated as allegations to the violations of the provisions of the SEBI Act, 1992 and PFUTP Regulations against the respective Noticees, and the instant order may be treated as an interim order cum show cause notice to the Noticees. Hence, the Noticees are hereby called upon to show cause as to why suitable directions, including the following, should not be issued/imposed against them under Sections 11(1), and 11B(1) of the SEBI Act, 1992, as proposed hereunder a) Direction to disgorge an amount equivalent to the alleged unlawful profits made on account of the scheme as described above, along with interest. b) Directing them to refrain from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period. c) Directing the registered RAs to refrain from undertaking any activity relating to research advisory.

Summary

Issues Involved:
1. Connection amongst Noticees
2. Sharing of information in advance about stock recommendations
3. Increase in trade volume and positive movement of price
4. Role of Enablers
5. Summary of profit on intraday trade based on advance information of recommendation
6. Sharing of profits amongst Noticees
7. Determination of facts
8. Examination of violation of provisions of SEBI Act and regulations
9. Need for interim ex-parte order
10. Joint and several liability
11. Ex parte interim order

Detailed Analysis:

1. Connection amongst Noticees:
The investigation revealed connections among the Noticees through various means such as mobile numbers, KYC details, bank statements, call data records, and geographical locations. For instance, Nirmal Kumar Soni was found to be the authorized signatory and director of Manan Sharecom Private Limited, and he had frequent communications with other Noticees such as Kiran Jadhav and Ashish Kelkar. These connections were further corroborated by WhatsApp and Telegram chats and meetings in different locations.

2. Sharing of Information in Advance about Stock Recommendations:
Evidence showed that Guest Experts shared non-public information about their stock recommendations with Profit Makers before broadcasting on Zee Business. For example, Simi Bhaumik shared her recommendation to buy 'BALRAMPUR CHINI' with Partha Sarathi Dhar before it was aired. This advance information was used by Profit Makers to execute trades and make profits.

3. Increase in Trade Volume and Positive Movement of Price:
The recommendations by Guest Experts led to significant increases in trade volumes and favorable price movements in the recommended stocks. For example, the recommendation of 'BALRAMPUR CHINI' by Simi Bhaumik resulted in a substantial increase in trading volume and price within minutes of the recommendation being aired.

4. Role of Enablers:
Enablers such as Nitin Chhalani, Rupesh Kumar Matoliya, and Ajaykumar Ramakant Sharma provided necessary support to Profit Makers by offering trading accounts, login credentials, and NEAT terminal details. These Enablers facilitated the execution of trades based on advance information of stock recommendations.

5. Summary of Profit on Intraday Trade Based on Advance Information of Recommendation:
The investigation found that Profit Makers executed trades based on advance information and made substantial profits. For instance, SAAR Commodities Private Limited earned a profit of INR 4,37,57,697 through 506 instances of recommendation-based trades.

6. Sharing of Profits Amongst Noticees:
The profits earned from recommendation-based trades were shared among the Noticees. This was corroborated by WhatsApp chats and statements recorded during the investigation. For example, Simi Bhaumik admitted to having a profit-sharing arrangement with Nirmal Kumar Soni, where she received around INR 75 lakhs in cash.

7. Determination of Facts:
The investigation determined that the Noticees devised a scheme to take advantage of non-public information about stock recommendations. Guest Experts shared their recommendations with Profit Makers before broadcasting, who then executed trades to make profits. Enablers facilitated these trades by providing necessary support.

8. Examination of Violation of Provisions of SEBI Act and Regulations:
The Noticees were found to have violated various provisions of the SEBI Act and PFUTP Regulations. These violations included employing manipulative and deceptive devices, engaging in fraudulent schemes, and dealing in securities while in possession of non-public information.

9. Need for Interim Ex-parte Order:
The urgency to pass an interim ex-parte order was highlighted to prevent further damage to the securities market and protect the wrongful gains from being siphoned off. The order aimed to restrain the Noticees from buying, selling, or dealing in securities and impounding the unlawful gains.

10. Joint and Several Liability:
The Noticees were held jointly and severally liable for the wrongful gains generated from the trades. For instance, Nirmal Kumar Soni was held jointly and severally liable along with SAAR Commodities, Manan Sharecom Private Limited, and Kanhya Trading Limited for the amount of wrongful gains.

11. Ex Parte Interim Order:
The interim order restrained the Noticees from buying, selling, or dealing in securities and directed them to deposit the unlawful gains into an escrow account. The order also directed banks and depositories to ensure no debits were made from the Noticees' accounts without SEBI's permission.

This comprehensive analysis covers all relevant issues and provides a detailed summary of the legal judgment while preserving the original legal terminology and significant phrases.