The Securities and Exchange Board of India (Sebi) on Friday took action against six employees of the India Infoline Group for front-running, a market malpractice where individuals with knowledge of upcoming large transactions trade using the information to make illicit gains.
The regulator imposed a fine of ₹10 lakh on Santosh Singh and ₹8 lakh on his friend Adil Suthar. The two employees, as well as four other people, have also been banned from accessing the securities market for five years.
“It has been found in the present case that Singh and Suthar have executed high-profile transactions, which violate the provisions relating to fraudulent and unfair business practices under the Sebi Act and the Regulations on the Prohibition of Fraudulent Business Practices and (PFUTP), this also justifies the imposition of a pecuniary penalty under Article 15 HA of the Sebi Law,” the regulator said in a 41-page order.
Singh, a broker at India Infoline, was responsible for placing trade orders on behalf of various large clients, based on instructions taken by fund managers. Clients for whom Singh was a broker included IIFL Mutual Fund, IIFL Select Series II, IIFL Multi-Strategy Fund, IIFL Long Term Growth Fund I, IIFL Focused Equity Strategies Fund, Capmetrics Investment Adviser and IIFL Special Opportunities Fund Series 5. The Sebi order said Singh was essentially a “bringer of information” and was guilty of misusing his knowledge of upcoming orders from IIFL Group entities.
Singh used to alert Suthar to watch specific scripts and price movements, and execute buy and sell trades on those scripts. Therefore, Suthar was also in possession of upcoming trade orders, which were not available in the public domain, making him a conduit for information.
However, Sebi noted that the other four employees were poor and illiterate. The investigation established that Singh and Suthar were the masterminds of the scheme who opened, operated, managed and controlled the accounts of the other four employees, who sometimes used to get monetary help from Singh and Suthar. The four employees were simply acting as “mules” or innocent victims who are tricked by fraudsters into laundering stolen or illegal money through their bank accounts.
“It was alleged that the four employees loaned their business and bank accounts to Singh and Suthar to carry out these high-profile activities and that they had no understanding of the transactions that were executed from their accounts by Singh. and Suthar,” Sebi said.
“There is no longer any room for doubt that the noticees…had lent their business and bank accounts…which virtually resulted in the transfer of ownership and custody of the titles and funds…to a third party. This underhanded practice made it easier for the notary to perform high-profile operations while concealing his identity behind name-lending account holders and name-lenders receiving gratuity, directly or indirectly, in one form or another by participating to illicit activities by renting out their accounts,” Sebi said.
In a separate order related to front-running by Fidelity Group employees, Sebi found Vaibhav Dhadda (alias Avi Dhadda), a former Fidelity International employee and trader of 21 Fidelity Group funds, along with his relatives Alka and Arushi. , guilty of this professional misconduct. In another case of front-running, some fund managers of Axis Mutual Fund recently shared trading information with external brokers, which was then used by seven entities in Gujarat who traded these tips in large numbers.