Description

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

Summary

SEBI issued an order in a front running case involving 30 Noticees accused of violating 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 a Big Client (certain family trusts). A common Show Cause Notice was issued on January 24, 2024. Subsequently, 6 Noticees (Noticees 1 to 5 and 25) settled the matter via settlement order dated December 19, 2024 under SEBI Settlement Regulations, 2018. The remaining 24 Noticees are subject to this adjudication order.

Key Points

  • 30 entities originally charged with front running violations related to orders of family trusts (Big Client)
  • Common Show Cause Notice issued on January 24, 2024 alleging violations of SEBI Act Sections 12A(a), (b), (c), (e)
  • Alleged violations of PFUTP Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(q)
  • 6 Noticees (numbers 1-5 and 25) settled proceedings via December 19, 2024 settlement order
  • Angel One was issued a separate Show Cause Notice and subsequently settled
  • 24 Noticees include individuals, HUFs (Hindu Undivided Families) including Shankar Tukaram Vadatkar, Sakshi Shankar Vadatkar, Chaitali Shah, Shah Swapnil Uday, various members of Shah, Mehta, Bohra, Jain and Dussa families
  • Order covers 82 pages with detailed findings on technical issues and merits

Regulatory Changes

No new regulatory changes introduced. This is an enforcement order applying existing provisions of:

  • Securities and Exchange Board of India Act, 1992 (Sections 11(1), 11(4), 11(4A), 11B(1), 11B(2), 15HA, 15I, 12A)
  • SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003
  • SEBI (Settlement Proceedings) Regulations, 2018

Compliance Requirements

  • Market participants must avoid front running activities - trading ahead of large client orders using non-public information
  • Entities must comply with PFUTP Regulations prohibiting fraudulent and unfair trade practices
  • Broker-dealers and intermediaries must maintain information barriers to prevent misuse of client order information
  • Settlement route available under Settlement Regulations for alleged violators subject to SEBI approval

Important Dates

  • January 24, 2024: Show Cause Notice issued to all 30 Noticees
  • December 19, 2024: Settlement order issued for Noticees 1-5 and 25
  • October 23, 2025: Final adjudication order issued for remaining 24 Noticees

Impact Assessment

Market Impact: High - This enforcement action sends a strong deterrent message against front running practices, which undermine market integrity and investor confidence. Front running erodes fair price discovery and disadvantages legitimate investors.

Operational Impact: High - Broker-dealers and intermediaries must strengthen internal controls, information barriers, and surveillance systems to detect and prevent front running. The case demonstrates SEBI’s enhanced surveillance capabilities in detecting trading patterns indicative of front running.

Legal Impact: The order addresses several technical defenses raised by Noticees including delay in SCN issuance, procedural compliance with Adjudication Rules, impact of settlement orders, non-provision of Big Client’s trade logs, and cross-examination rights. The 82-page detailed order provides regulatory guidance on these procedural aspects in enforcement proceedings.

Precedent Value: High - Demonstrates SEBI’s ability to pursue complex front running cases involving multiple entities and family structures, including HUFs. The parallel settlement of 6 entities while proceeding with adjudication against 24 others shows flexible enforcement approach while maintaining deterrence.

Impact Justification

High-profile front running case involving 30 entities with allegations of violating PFUTP Regulations. Settlement order already issued for 6 noticees in December 2024. Significant enforcement action demonstrating SEBI's stance on market manipulation.