Gujarat CM Rupani's HUF among 22 fined for manipulative trades

The Securities and Exchange Board of India has imposed penalties on 22 entities including Gujarat chief minister Vijay Rupani's Hindu Undivided Family (HUF), for ''manipulative trades'' in a little-known company, Sarang Chemicals.

The capital markets regulator has imposed total penalties worth Rs 6.9 crore on all the entities, which Sebi's investigation found were ''connected or related'', reports the Business Standard.

Sebi has directed Rupani's HUF to pay Rs15 lakh, while three other individuals have been asked to deposit Rs70 lakh each or more. It says the penalties are ''commensurate with the violations''.

Among the 22 entities, two are brokers through whom the trades were executed, the report says. They have been asked to pay a penalty of Rs8 lakh each.

The alleged manipulative transactions were done between January 2011 and June 2011. Rupani became Gujarat CM in August 2016.

In May 2016, Sebi had issued a common show cause notice to the 22 entities alleging violations of its Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) rules relating to the securities market.

Telephone calls, emails and messages to Rupani and his office went unanswered. Business Standard verified Rupani's HUF permanent account number that Sebi mentioned with his affidavit on the Election Commission of India website.

''Since the violations against the noticees have been established and the same are serious in nature, therefore, I am of the view that monetary penalty under section 15 HA of the Sebi Act (PFUTP) against the noticee numbers 1-20 and monetary penalty under section 15 HB of the Sebi Act (Stock Brokers Regulations) against noticee numbers 21 & 22 are warranted in the case,'' said Sebi in a 31-page order dated 27 October.

Sebi has bifurcated the noticees into two segments - one for price manipulation and the other for creating misleading appearance in the securities market and creating artificial volume in the shares of Sarang Chemicals by trading among themselves. Vijay Rupani HUF (Noticee 18) is mentioned in the second consideration.

During the investigation period, 20 entities bought shares that accounted for 33 per cent of the market volume and later sold shares that accounted for 86 per cent of the market volume. Sebi said Rupani HUF had gross sales of 87,311 shares accounting for 0.1 per cent of the gross sales to total selling volumes. However, the HUF is among the entities which benefited.

''It is observed that noticee numbers 1-9, 18 & 20 by trading voluminously amongst themselves had first generated interest among the other investors to trade in the scrip and when the other investors started trading in the scrip due to such false impression of market, some of the group entities (noticee numbers 1-5 and 10-17) had offloaded shares in the market at an increased price ... such pattern of trading clearly reveals the ulterior/malafide intent and certainly such activities of noticee numbers 1-18 & 20 is in violation of regulation 3 (a) to (d), 4 (1) & 4 (2) (a), (b) & (e) of the PFUTP Regulations,'' the Sebi order says.

The market regulator also said that Rupani didn't reply to the show cause notice (SCN) issued by it. ''The noticee (Rupani HUF) contended that the CD (compact disk) attached to SCN is damaged and it is unable to open the same. Considering the request of the noticee, another CD was sent to him vide communique, dated May 25, 2016, and informed the noticee number 18 that in case it is still unable to open the CD then, its duly authorised person may collect the same from office of undersigned with prior intimation.

''It was also stated in said communique to provide its e-mail ID. Vide letter dated June 13, 2016, the noticee requested for keeping in abeyance the proceedings till Mr Vijay Rupani recovers. As per medical certificates attached with said letter suggested for rest of eight weeks to Vijay Rupani from May 18, 2016, however, no reply towards the SCN has been received from it/him till date,'' Sebi said in the order.

Sebi said it passed an ex-parte order as the noticees, including Rupani HUF, failed to submit their reply to the SCN within the sufficient time provided.

The Sebi adjudicating officer said, ''I am of the view that the modus operandi used by the said noticee(s) in first creating an artificial interest of trading in the scrip/manipulatively luring investors to trade and then, offloading shares at increased price and thereby making unlawful gain, is serious in nature and detrimental to the market.''