2012 (12) TMI 1145 - AT - Companies Law

SEBI Restrains Trader for Manipulative Trades

Anita Dalal Versus Securities and Exchange Board of India

The appellant was restrained from accessing the securities market for 18 months by SEBI for engaging in synchronized trades, creating artificial volumes. ... - Issues Involved:1. Allegation of synchronized trades and creation of artificial volumes.2. Appellant's defense against the allegations.3. Board's stance on the appellant's trades.4. Tribunal's analysis of the appellant's trades.5. Precedents cited by the Tribunal.6. Self trades by the appellant.7. Consideration of extra benefits from volume manipulation.8. Proportionality of the restraint period.Summary:1. Allegation of synchronized trades and creation of artificial volumes:The appellant was restrained from accessing the securities market for 18 months by the Securities and Exchange Board of India (SEBI) for allegedly engaging in synchronized trades, contributing to artificial volumes in the scrips of Bang Overseas Limited, Confidence Petroleum India Ltd., and Cals Refineries Limited. The order was passed u/s 19 read with Sections 11 and 11B of the SEBI Act, 1992, and Regulation 11 of the FUTP regulations.2. Appellant's defense against the allegations:The appellant argued that she was unaware of the manipulative activities of the connected group and acted per normal business standards. She contended that her trades were insignificant, constituting less than 3% of the overall trades, and there was no financial connection with the parties involved. The appellant also claimed that the self trades were merely for shifting positions between brokers.3. Board's stance on the appellant's trades:The Board maintained that the appellant's trades fell into the category of reversal, self trades, and matching trades, contributing to artificial volumes. The Board argued that the appellant's trades showed a common pattern of matching in volume, time, and quantity, indicating a meeting of minds with the connected entities.4. Tribunal's analysis of the appellant's trades:The Tribunal found that the appellant's trades convincingly demonstrated involvement in synchronized/reversal transactions. The consistent matching of trades over time, facilitated by a common broker (the appellant's husband), indicated a deliberate manipulation of volumes. The Tribunal dismissed the appellant's argument of insignificant trades and coincidence.5. Precedents cited by the Tribunal:The Tribunal referenced previous cases, such as M/s. Galaxy Broking Ltd. vs. SEBI and GIR Marketing & Trading Co. Pvt. Ltd. vs. SEBI, to support the view that reverse trades and cross deals executed through a common broker are indicative of manipulative practices.6. Self trades by the appellant:The Tribunal held that self trades are inherently illegal and fictitious, meant to create false volumes. The appellant's explanation for self trades was deemed unconvincing, and the Tribunal noted that self trades involving 500 shares remained admitted.7. Consideration of extra benefits from volume manipulation:The Tribunal stated that it was unnecessary to consider the issue of extra benefits since the appellant's involvement in manipulative activities was evident and prohibited by the FUTP regulations.8. Proportionality of the restraint period:The Tribunal found merit in the appellant's argument that the 18-month restraint was excessive. Considering the relatively lesser contribution to artificial volumes, the Tribunal reduced the restraint period to three months from the date of the impugned order.Conclusion:The appeal was partly allowed, reducing the restraint period to three months. No costs were awarded.