SEBI Bans Five From The Securities Market And Impounds INR 2.44 Crores In The LIC Front-Running Trade Case.
The order was issued after the alert system of SEBI generated front-running alerts for these five businesses accused of front-running LIC or significant client trades from January to March 2022.
The SEBI has barred three people and two businesses (for a total of five) from trading in securities markets in connection with front-running trades in the Life Insurance Corporation of India. Front running is the practice of dealers dealing with advanced information provided by their brokers and investment analysts before their clients receive it.
The order was issued after Sebi’s alert system generated front-running alerts for these five businesses accused of front-running LIC or significant client trades from January to March 2022. Based on the notifications, an investigation was carried out from January 2020 to March 2022 to look into probable regulatory infractions by the accused organisations.
Yogesh Garg, a LIC employee since November 8, 2011, was one of the persons. The others are Sarita Garg, Kamlesh Agarwal, Ved Prakash HUF, and Sarita Garg HUF. In addition, SEBI seized Rs 2.44 crore from their accounts.
According to a recent interim order issued by SEBI, the firms must halt and desist from participating in any fraudulent, manipulative, or unfair commercial practice, including front running, therefore committing or causing a breach of any relevant laws.
The SEBI ruling means that it is prima facie established that Notices 1 to 5 (five companies) were participating in a plan to front run the Big Client’s transactions and hence they are prima facie jointly and severally responsible for the revenues produced from the front running trades. Yogesh Garg, as a LIC dealer, was found to be in possession of non-public knowledge about LIC’s future directives and functioned as an information carrier.
SEBI decided that each of these five firms had a different part in the fraudulent plan created to circumvent LIC directives. These entities are accused of making unlawful gains totalling Rs 244.09 lakh through front-running conduct. They appear to have breached PFUTP (Prohibition of Fraudulent and Unfair Trade Practises) guidelines by engaging in such activities. As a result, Sebi has barred the five organisations from purchasing, selling, or dealing in securities, either directly or indirectly, until further orders are issued.
The entities are now required to provide the full inventory of the assets held in their name (movable or immovable), as well as any interest, investment (or charge on any of such assets), including details of bank accounts, DEMAT accounts, and mutual fund investments, within the next 15 days.
In light of this, SEBI recommended LIC to examine its procedures and implement any further measures necessary to prevent, identify, and correct any fraudulent, manipulative, or unfair trading practises by its employees in connection with its investment activities.
The most frequent front-running methods are Buy-Buy-Sell and Sell-Sell-Buy.
In the Buy-Buy-Sell (BBS) trading pattern, the putative front-runner places his purchase order before the large client’s buy order by utilising non-public knowledge about the big client’s approaching buy order. When the big client places a buy order, the price of the security rises, and the alleged front-runner sells the securities purchased earlier at the higher price, pocketing the difference between the newly raised price of the security established after the big client’s buy trades and the price at which he purchased his securities.
Furthermore, in the Sell-Sell-Buy (SSB) trading pattern, the alleged front-runner places his sell orders ahead of the big client’s sell order by using non-public information about the big client’s impending sell order when a large client issues a sell order, the security’s price falls, allowing the suspected front-runner to repurchase the shares at a reduced price to pay the commitments he established previously by selling stocks.
Disclosure.
It seems that SEBI is now more vigilant towards any activity that does not sound normal in trading. It is good to take precautions beforehand rather than finding the solution after the problem occurs.
