2012 (4) TMI 780 - AT - SEBI

SEBI Regulations Violation Appeal Outcome: Penalties Reduced, Code of Conduct Breach Upheld

The Tribunal upheld the finding that the appellant violated regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating ... - Issues Involved:1. Imposition of penalty u/s 15HA and 15HB of the SEBI Act, 1992.2. Alleged violation of regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (FUTP Regulations).3. Alleged breach of the code of conduct prescribed under SEBI (Stock Brokers and Subbrokers) Regulations, 1992.Summary:Issue 1: Imposition of penalty u/s 15HA and 15HB of the SEBI Act, 1992The appellant, a member broker of the Bombay Stock Exchange (BSE), was penalized Rs. 3 lacs: Rs. 2 lacs u/s 15HA for violating FUTP Regulations and Rs. 1 lac u/s 15HB for breaching the code of conduct under the Broker's Regulation. The adjudicating officer found the appellant guilty of artificially inflating the price of the scrip of Oregon Commercial Limited during the investigation period from November 21, 2008, to June 08, 2009.Issue 2: Alleged violation of regulations 3 and 4 of the FUTP RegulationsThe appellant, along with other brokers, was accused of placing buy orders at prices significantly above the last traded price, thereby artificially propping up the scrip's price. The adjudicating officer concluded that the appellant knowingly assisted in the artificial inflation of the scrip's price, thus violating regulations 3 and 4 of the FUTP Regulations. The appellant's defense that trading above the last traded price is not an offense was rejected, as the trading pattern indicated a well-thought-out plan to inflate the share price.Issue 3: Alleged breach of the code of conduct prescribed under SEBI (Stock Brokers and Subbrokers) Regulations, 1992The appellant was also found guilty of violating clauses 1 and 2 of Schedule II of the code of conduct under regulation 7 of the Broker's Regulations. The adjudicating officer noted that the appellant failed to exercise due diligence and care, as evidenced by the repeated fictitious/self trades executed by one of its employees. The appellant's argument that the volume of trades was negligible and that it acted at the behest of the client was not accepted.Conclusion:The Tribunal upheld the finding that the appellant violated regulations 3 and 4 of the FUTP Regulations and the code of conduct under the Broker's Regulations. However, considering the facts, the penalty for violating FUTP Regulations was reduced from Rs. 2 lacs to Rs. 1 lac, while the penalty of Rs. 1 lac for breaching the code of conduct was upheld. The appeal was partly allowed, reducing the total penalty to Rs. 2 lacs.