Description

SEBI order under Section 11 against 27 entities for fraudulent and unfair trade practices involving artificial price manipulation in DU Digital Technologies Limited during August 2021 to March 2023.

Summary

SEBI has issued an order under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of the SEBI Act, 1992 against 27 entities (individuals and one company) for engaging in fraudulent and unfair trade practices in the scrip of DU Digital Technologies Limited (now DU Digital Global Limited). The investigation revealed that 26 connected entities acted as a ‘group’ and employed deceptive trading strategies that artificially increased the price and volume of DU Digital shares during the investigation period from August 26, 2021 to March 31, 2023. The scrip price increased by 1392.5% from listing price of Rs. 12 to Rs. 179.10, reaching a peak of Rs. 296.05 (2467% increase) on November 11, 2022.

Key Points

  • Investigation initiated into DU Digital Technologies Limited (now DU Digital Global Limited), listed on NSE SME platform
  • Investigation Period: August 26, 2021 to March 31, 2023
  • Scrip listing price: Rs. 12 per share (August 26, 2021)
  • Closing price at end of IP: Rs. 179.10 (1392.5% increase)
  • Highest price during IP: Rs. 296.05 on November 11, 2022 (2467% increase from listing price)
  • 27 entities charged with violations of SEBI Act, 1992 and PFUTP Regulations
  • 26 entities (Noticee No. 1-26) identified as connected entities acting as a ‘group’
  • Connections established through: common mobile numbers, common MAC-IDs, common IP addresses, and frequent fund flows
  • One entity (Noticee No. 27): Sun Flower Broking Private Limited
  • Investigation period divided into 4 Patches based on trading patterns
  • Charges include deceptive trading strategies contributing to artificial price and volume manipulation

Regulatory Changes

No new regulatory changes introduced. This is an enforcement action for violations of existing provisions under:

  • SEBI Act, 1992 (Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2))
  • SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulation, 2003 (PFUTP Regulations)
  • SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 (Rule 5)

Compliance Requirements

This is an enforcement order against specific entities. General market participants should:

  • Avoid coordinated trading activities that artificially influence price and volume
  • Refrain from creating misleading appearance of trading activity
  • Not engage in connected entity trading that manipulates scrip prices
  • Maintain independent trading decisions without group coordination
  • Ensure compliance with PFUTP Regulations in all securities market transactions

Important Dates

  • August 26, 2021: Listing date of DU Digital Technologies Limited at Rs. 12/share on NSE SME platform
  • August 26, 2021 to March 31, 2023: Investigation Period
  • November 11, 2022: Peak price of Rs. 296.05 recorded
  • 2026-01-01: Date of SEBI order publication

Impact Assessment

Market Impact:

  • High impact enforcement action demonstrating SEBI’s continued vigilance on SME platform manipulation
  • Serves as deterrent against coordinated group trading and artificial price manipulation
  • Highlights vulnerability of SME scrips to manipulation by connected entities
  • Reinforces importance of surveillance mechanisms for detecting coordinated trading patterns

Investor Impact:

  • Investors in DU Digital Technologies Limited during the investigation period may have been affected by artificially inflated prices
  • Demonstrates risks of investing in low-liquidity SME scrips susceptible to manipulation
  • Emphasizes need for investor caution when observing unusual price movements in SME stocks

Operational Impact:

  • Brokers and intermediaries should strengthen KYC and surveillance systems to detect connected entity trading
  • Enhanced monitoring required for identifying common infrastructure usage (IP addresses, MAC-IDs, mobile numbers)
  • Fund flow analysis critical for detecting coordinated trading groups
  • Exchange surveillance systems validated in detecting manipulation patterns across multiple patches

Regulatory Impact:

  • Demonstrates effective enforcement of PFUTP Regulations in SME segment
  • Sets precedent for action against large groups of connected entities
  • Reinforces Section 11 powers for market manipulation cases
  • Validates multi-parameter approach (technical, behavioral, and connectivity analysis) for establishing coordinated manipulation

Impact Justification

Major enforcement action against 27 entities for coordinated market manipulation resulting in 1392.5% artificial price increase. Involves systematic fraudulent trading practices, connected entities acting as a group, and violations of PFUTP regulations on NSE SME platform.