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The account holder cannot absolve itself from its mistake even if the reason is misleading – The Security and Exchange Board of India

The account holder cannot absolve itself from its mistake even if the reason is misleading – The Security and Exchange Board of India

The SEBI observed large-scale trade reversals in the stocks options segment of BSE and the large-scale trade reversals led to the creation of artificial volume. An investigation was conducted and it was found that Sourabh Agarwal HUF(Noticee) was one indulged in the execution of alleged non-genuine trades in the Stock Options segment at BSE and had entered into creation of reversals of reversal trades and various allegations for the alleged violations of Regulations3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a) of the SEBI Regulations, 2003 and in the matter adjudication proceedings were conducted by the appointed adjudication officer AMITESH KUMAR [ADJUDICATION ORDER NO. Order/AK/DK/2021-22/14949]

During the investigation, It was found that a total of 2,91,744 trades comprising 81.4% of all the trades executed in the Stock Options Segment of BSE were found to be non-genuine trades and for the alleged violations a show-cause notice was sent to noticee as to show- cause why an inquiry be not held against it and why penalty should not be imposed under Section 15HA of the SEBI Act, 1992 for the violations alleged to have been committed. The response from the noticee submitted that whatever has happened was illegal but the Noticee cannot be blamed for the same as the Noticee was given wrong information by the financial advisors and various other points were made and the current adjudication proceedings were conducted in the present matter.

It was alleged that the noticee was engaged in the trades which were non-genuine and had created a false or misleading appearance of trading in terms of artificial volume in Stock Options and therefore are alleged to be manipulative and deceptive and the noticee admitted that what happened was illegal but the Noticee cannot be blamed as it was misled by the financial advisors. The officer states that being the owner of the trading account, the Noticee cannot absolve itself from liability even though it may have been misled. The noticee cannot turn away from its mistake.

The officer state that the non-genuine trades are not general means their conduct is not the same as other trades the conduct can be seen in the trading pattern of noticee where it can be observed that the noticee revised its trades within a short period and  The non-genuineness of these transactions executed by the Noticee is evident from the fact that such pattern of dealing appears to be not driven by market factors as any of the parameters (underlying stock price, volatility, etc.,). Therefore it can be established that the noticee was non-genuine and has created a false or misleading appearance of trading in terms of artificial volume in Stock Options and thus the same is manipulative and deceptive. Reliance is put on the case of SEBI vs. Rakhi Trading Private Ltd (2018) 13 SCC 753 and SEBI vs. Kishore R Ajmera (AIR 2016 SC 1079)

The non-genuineness and deceptive transactions of the Noticee are covered under the definition of ‘fraud’ and the dealings of the Noticee as discussed hereinabove were “fraudulent”, as defined under Regulation 2(1)(c) of the PFUTP Regulations and prohibited under the provisions of Regulations 3(a), 3(b), 3(c) and 3(d) and 4(1) and 4(2)(a) of the PFUTP Regulations and reliance is put on Ketan Parekh vs. SEBI (Appeal no. 2/2004) and Global Earth Properties and Developers Pvt Ltd (Appeal No: 212/2020) and with this, the allegation of creation of the false or misleading appearance of trading in terms of artificial volumes in the Stock Options contract stands established.

After taking into consideration all the matter from the proceedings it is clear that noticee has violated the provisions of Regulations3(a), (b), (c), (d) and Regulation 4(1), 4(2)(a) of the SEBI Regulations, 2003 and a monetary penalty is put on noticee of Rs. 5,00,000 under Section 15HA of the Securities and Exchange Board of India Act, 1992.

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Order reviewed by Naveen Sharma

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