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Informist, Thursday, Jan. 2, 2025

 

--SEBI passes interim order on Ketan Parekh, others in front-running case

--SEBI: To impound INR-658-mln gain in front-running case from Parekh, others

 

NEW DELHI – The Securities and Exchange Board of India Thursday passed an interim order against Ketan Parekh, Singapore-based Rohit Salgaocar, and 20 other entities and individuals for alleged violation of norms through front running of trades of various funds of an overseas entity engaged in foreign portfolio investments. The market regulator has directed impounding unlawful gains of INR 657.71 mln, including commission earnings, from Parekh, Salgaocar, and other entities and individuals.

 

In the interim order, SEBI said that Salgaocar and Parekh devised a scheme to unjustly enrich from non-public information pertaining to the funds of the overseas entity by orchestrating front running activities. "Traders of the Big Client (overseas entity) were discussing with Rohit Salgaocar prior to executing trades and such information was prima facie encashed by Rohit Salgaocar by sharing the same with Ketan Parekh...When the information reached Ketan Parekh, he acted in a systematic manner and trades were executed in different accounts which cumulatively generated unlawful profits," SEBI said in the interim order.

 

SEBI had carried out an investigation in the matter from Jan. 1, 2021 to Jun. 20, 2023. Salgaocar, according to SEBI, is a director and authorised signatory of Singapore-based company Strait Crossing Pte, and he entered into a referral agreement with Nuvama Wealth Management Ltd. and Motilal Oswal Financial Services Ltd. to refer trades of the overseas entity's funds to them. Salgaocar was privy to non-public information to substantial impending transactions in the shares of various listed companies since traders of the overseas entity used to consult him before placing orders in the Indian market, SEBI said in the order.

 

SEBI found that while trades of the overseas entity's funds were spread across a large number of brokers, the trades undertaken through Nuvama Wealth Management and Motilal Oswal Financial Services matched with trades of the alleged front runners which included broking firms GRD Securities Ltd. and Salasar Stock Broking Ltd., and four other entities and individuals.

 

The scheme also involved three facilitators and 11 directors associated with the front runners. According to SEBI, the six front runners allegedly traded on the basis of instructions received, directly or indirectly, from Ketan Parekh which were allegedly based on non-public information with respect to the impending trades of the overseas entity's funds in shares of various listed companies.

 

Two traders of the overseas entity told SEBI in their statements that they would interact with various entities including Salgaocar for sourcing liquidity and helping find the other side of the trade in the Indian market, and that the Indian brokers compensated Salgaocar for his services. According to them, their firm did not have any formal arrangement or contract with Salgaocar, but the firm's former global head of trading, and former regional manager of trading, knew about its dealings with Salgaocar.

 

In his statement to SEBI, Salgaocar said that he was functioning as an inter-trader broker and 90% of the overseas entity trades he was involved in were routed through Nuvama Wealth Management and Motilal Oswal Financial Services. As per the referral agreements, the brokers would give him 75% of the net brokerage income, Salgaocar told SEBI.

 

According to the SEBI interim order, Nuvama Wealth Management and Motilal Oswal Financial Services had no written communication from the overseas entity authorising Salgaocar or his firm to act on their behalf or to handle their trades. Despite this, the traders of the two broking firms were taking instructions from Salgaocar to execute trades of the overseas entity's funds. During SEBI's investigation from January 2021 to June 2023, Nuvama Wealth Management paid INR 190 million as referral fee or commission to Salgaocar, while Motilal Oswal Financial Services paid INR 80.6 million.

 

According to the SEBI order, listed companies, whose shares were bought and sold by the facilitators on behalf of Parekh in the front-running operation, included Larsen & Toubro Ltd., Titan Co. Ltd., HDFC Bank, HDFC Ltd., Cholamandalam Investment and Finance Co. Ltd., Tube Investments Ltd, and Policy Bazar Ltd.

 

As per the modus operandi, SEBI said, the front runners, led by information from Parekh, would buy, in advance, shares of the companies that the overseas entity was looking to buy. When these buy orders were placed through Nuvama Wealth Management and Motilal Oswal Financial Services, the front runners would square off their trades.

 

The entire scheme of front running violated SEBI's prohibition of fraudulent activities regulations. The SEBI interim order Thursday also bars Parekh, Salgaocar, and a facilitator Ashok Poddar, from dealing in securities and debarred from associating with any intermediary, directly or indirectly, with immediate effect.

 

Parekh and his group entities were earlier involved in a major stock market scam where he rigged the prices of a few listed companies from 1995 to 2001. In an order in December 2003, SEBI had banned him and other involved entities from the securities market for a period of 14 years.

 

SEBI's interim order of Thursday against Parekh and others also serves as a show-cause notice to them. Parekh and the others will have to respond to the market regulators's findings laid out in the interim order. SEBI will pass a final order after it completes the hearings.  End

 

Reported by Rajesh Gajra

Edited by Ashish Shirke

 

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