2015 (4) TMI 482 - AT - Indian Laws

Violation of Regulation 3(a), 4(1) and 4(2)(a),(b),(e) and (g) of SEBI PFUTP (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 - Violation of Regulation 7 read with Clause A(1), A(3), A(4) and A(5) of Code of Conduct for Stock Brokers under SEBI (Stock-Brokers and Sub-Brokers) Regulations, 1992 - Self trading - Shares purchased at higher price and sold at lower price. Held that - Regarding submissions of Appellant that price of scrip of SGWL was increasing since start of IP with increase in volume, and hence volatility in scirp, enticed its dealers towards arbitrage opportunity and therefore dealers of AIPL were followers and not creators of the volumes. Ld. AO has rightly held that volumes, increase or decrease, are not concern of regulators, but artificial creation of volumes, through self/fictitious trades, are of concern, which defeat purpose of anonymity of trading system of exchanges and affect investor s interests, adversely. It has also been held by Ld. AO that there is huge difference in AIPL s buy and sell volumes, on two days, when self trades were executed and hence not in nature of jobbing. In view of above, AIPL have been held violative of regulation 3(a), 4(1) and 4(2)(a), (b), (e) and (g) of PFUTP Regulations and ABPL held violative in addition to regulation 7 read with Clauses A(1), A(3), A(4) and A(5) of Code of Conduct of Stock-Brokers, as specified in Schedule II of Stock-Broker Regulations. To sum up, facts on record reveal that AIPL which subsequently merged with ABPL, had on November 30, 2009 and December 1, 2009 executed 4 self trades, wherein ABPL acted as broker as well as counter party broker. Moreover, it is found that AIPL had on December 1, 2009 sold shares at lower price and bought shares at higher price, which is contrary to normal jobbing, wherein, normally shares are bought at lower price and sold at a higher price. Although, self trades in question were executed only on two days and there is time gap between buy order and sell order and number of shares may be only 7.45% of total in buy and 10.20% of total sale of SGWL scrip on these two days yet in facts of present case, modus operandi adopted by ABPL/AIPL in executing self trades and that too buying shares at a higher price and selling at a lower price clearly show that the trades executed were not normal trades. In these circumstances, AO is justified in holding that self trades were executed with ulterior motives. Therefore, quantum of penalty imposed upon Appellant based on facts on record, mitigating factors and past conduct of Appellant cannot be faulted. - Decided against the appellant.

Summary

Issues Involved:
1. Imposition of penalties under SEBI Act for violations of PFUTP Regulations and Stock-Brokers Regulations.
2. Allegations of self-trades and creating artificial volumes.
3. Appellant's defense and explanation of trades.
4. Analysis and findings of the Adjudicating Officer (AO).
5. Reference to case laws and precedents.
6. Quantum of penalty and its justification.

Detailed Analysis:

1. Imposition of Penalties:
The appeal was filed by Angel Broking Private Limited (ABPL) against the order of the Adjudicating Officer (AO) of SEBI, imposing penalties of Rs. 10 lakh each for violations of PFUTP Regulations and Stock-Brokers Regulations. The penalties were imposed under Section 15HA and Section 15HB of the SEBI Act.

2. Allegations of Self-Trades:
SEBI investigated trading in the scrip of Sterling Green Wood Limited (SGWL) and found that ABPL executed self-trades for its client AIPL during the investigation period. These self-trades were alleged to have created artificial volumes and manipulated the price of the scrip.

3. Appellant's Defense:
The appellant argued that the self-trades were coincidental and resulted from the jobbing/arbitrage activities of multiple dealers operating independently. They claimed that the trades were executed at prevailing market prices and did not create misleading appearances or manipulate the price discovery mechanism.

4. Findings of the AO:
The AO found that ABPL assisted AIPL in placing fictitious trades/self-trades, violating PFUTP Regulations and Stock-Brokers Regulations. The AO systematically analyzed the order patterns and concluded that the trades were intentional and aimed at creating artificial volumes. The AO also noted that ABPL's explanation of independent trading by dealers was not acceptable, as the trades did not follow the basic rule of buying cheap and selling costly.

5. Reference to Case Laws:
The appellant cited several cases, including Chirag Tanna vs. SEBI, H.J. Securities Pvt. Ltd. vs. SEBI, Smt. Krupa Sanjay Soni & Anr. vs. SEBI, and Arcadia Share and Stock Brokers Pvt. Ltd. However, the AO distinguished these cases based on the facts and circumstances of the present case. The respondent also cited cases like Anita Dalal vs. SEBI and others, which supported the findings against the appellant.

6. Quantum of Penalty:
Considering the seriousness of the violations, the AO imposed exemplary penalties on the appellant. The AO noted that self-trades do not result in a change of beneficial ownership but create false volumes and manipulate prices, sending wrong signals to investors. The AO also considered the appellant's past conduct and concluded that the penalties were justified.

Conclusion:
The Tribunal upheld the findings of the AO, concluding that ABPL executed self-trades with full knowledge and intent to manipulate the market. The appeal was dismissed, and the penalties imposed by the AO were deemed appropriate based on the facts and circumstances of the case.