Description

SEBI order under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) in a front running case involving 30 noticees who allegedly violated PFUTP Regulations by front running orders of family trusts.

Summary

SEBI issued an order under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) read with Sections 15HA and 15I of the SEBI Act, 1992 in a front running matter involving 30 noticees. The order alleges violations of Sections 12A(a), (b), (c) and (e) of SEBI Act and Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(q) of the PFUTP Regulations, 2003. The case involves alleged front running of orders placed by certain family trusts (referred to as “Big Client”). Six entities (Noticees 1 to 5 and 25) have already settled the proceedings vide a settlement order dated December 19, 2024.

Key Points

  • Total 30 noticees involved in alleged front running of family trust orders
  • Charges include violations of SEBI Act Sections 12A(a), (b), (c) and (e)
  • Alleged violations of PFUTP Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(q)
  • Show Cause Notice issued on January 24, 2024
  • Six noticees (1-5 and 25) settled via December 19, 2024 settlement order
  • Remaining 24 noticees subject to adjudication proceedings
  • Case involves front running of “Big Client” orders (certain family trusts)
  • Angel One broker also issued SCN and settled separately
  • Order spans 82 pages with detailed findings

Regulatory Framework

Applicable Provisions:

  • SEBI Act, 1992: Sections 11(1), 11(4), 11(4A), 11B(1), 11B(2), 12A(a), (b), (c), (e), 15HA, 15I
  • PFUTP Regulations, 2003: Regulations 3(a), (b), (c), (d), 4(1), 4(2)(q)
  • Settlement Regulations, 2018 (for settlement proceedings)

Nature of Violations:

  • Front running of client orders
  • Fraudulent and unfair trade practices
  • Market manipulation and abuse of non-public information

Entities Involved

Noticees 6-30 (remaining parties to adjudication):

  • Shankar Tukaram Vadatkar
  • Sakshi Shankar Vadatkar
  • Chaitali Shah
  • Shah Swapnil Uday and HUF
  • Dipesh Mehta and HUF
  • Piyush Mehta and HUF
  • Hansraj Randhir Shah and HUF
  • Randhir Virji Shah HUF
  • Pinakin Hansraj Shah and HUF
  • Punaiben Hansraj Shah
  • Raahul Hansraj Shah and HUF
  • Soniya Mahesh Bohra
  • Mahesh Bohra
  • Shailesh Nayak
  • Ankesh Mahendra Jain and HUF
  • Dr Kumaraswami R Dussa and HUF

Settled Parties:

  • Noticees 1-5 and 25 (names not disclosed in excerpt)

Procedural History

Show Cause Notice:

  • Date: January 24, 2024
  • Common SCN issued to all 30 noticees
  • Charges: Front running violations under SEBI Act and PFUTP Regulations

Settlement:

  • Six noticees settled via order dated December 19, 2024
  • Settlement under SEBI Settlement Regulations, 2018
  • Angel One broker separately settled its proceedings

Current Proceedings:

  • Adjudication proceedings pending for 24 noticees
  • Technical issues raised: delay in SCN, non-compliance with Adjudication Rules, impact of settlement order, non-provision of Big Client documents, cross-examination requests
  • Order includes detailed consideration of technical issues and merits

Important Dates

  • January 24, 2024: Show Cause Notice issued to all 30 noticees
  • December 19, 2024: Settlement order for Noticees 1-5 and 25
  • October 24, 2025: BSE circular date

Impact Assessment

Regulatory Impact:

  • Reinforces SEBI’s enforcement against front running practices
  • Sets precedent for handling multi-party front running cases
  • Demonstrates use of settlement mechanism in complex enforcement matters
  • Highlights regulatory focus on protecting large client orders from misuse

Market Impact:

  • Medium impact as case involves specific entities rather than systemic changes
  • Serves as deterrent for front running and misuse of client order information
  • Affects trading practices of brokers and entities with access to large client orders
  • May impact confidence in fair execution of large institutional/family trust orders

Compliance Requirements:

  • Market participants must ensure robust systems to prevent front running
  • Brokers must maintain strong information barriers and surveillance mechanisms
  • Enhanced monitoring required for trading ahead of large client orders
  • Entities should review internal controls and employee trading policies

Impact Justification

High severity SEBI enforcement order involving 30 entities for front running violations. Medium market impact as it pertains to specific entities rather than systemic changes. Important for compliance and regulatory precedent.