The Securities and Exchange Board of India (SEBI) has taken significant regulatory actions against market manipulation, issuing interim orders to suspend various entities involved in fraudulent activities. This crackdown centers on Sachin Bakul Dagli, an equity dealer at PNB MetLife, who along with eight other parties, has been banned from trading securities due to his participation in front-running schemes.
Over the last three years, Dagli and others reportedly generated illegal gains of ₹21.16 crore ($2.5 million) by misusing non-public trade information. The investigations, covering the period from January 1, 2021, to July 19, 2024, highlighted systematic violations of SEBI's Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations and the SEBI Act.
The scheme operates on accessing confidential trade details of institutional clients. This information was disseminated primarily through chat platforms, allowing Dagli and his associates—like his brother Tejas Dagli, who was associated with Investec—to execute fraudulent trades by capitalizing on the market movements caused by large client transactions. The modus operandi involved patterns of trading like Buy-Buy-Sell or Sell-Sell-Buy, leading to 6,766 instances of such trades, which fattened their illicit profits.
SEBI's punitive measures also include the impounding of the illegal profits generated by these trades, alongside suspending trading for all nine entities involved until they are cleared of wrongdoing.
Simultaneously, SEBI has acted against Bharat Global Developers Ltd (BGDL), suspending its trading rights over allegations of fraudulent financial disclosures. This unprecedented measure is remarkable, considering BGDL's share price skyrocketed 105 times over the last year, from ₹16.14 to ₹1,702.95, raising serious red flags for market manipulation.
SEBI's investigation was prompted by complaints received on December 16, which indicated potential irregularities within BGDL’s financial reporting. Initial findings suggested BGDL fabricated orders and relationships with prominent companies such as Reliance Industries, Tata Agrico, and McCain India, later confirmed as non-existent.
BGDL’s suspicious activity included a sudden and dramatic overhaul of its management team, along with the dilutive issuance of shares to 41 privileged allottees. Alarmingly, these allocations resulted in 99.5% of BGDL's shares remaining under the control of only a few individuals, carried out at prices well below market value.
SEBI's assessment illuminates how BGDL employed fabricated disclosures to create the illusion of financial health, misleading investors and artificially inflaming the company's stock price. To exacerbate the deception, significant portions of the shares were offloaded by those allottees for profits exceeding ₹270 crore within the subsequent months.
“The shocking falsities presented by BGDL as legally required disclosures to the exchange expose a clear fraudulent scheme,” said Ashwani Bhatia, a member of SEBI. This sentiment was echoed by market analysts, highlighting SEBI's assertive role as it exercises stringent scrutiny over corporate behaviors, setting forth stricter requirements for transparency and auditing.
Sanjay Israni, partner at Desai & Diwanji, characterized the immediate and decisive actions from SEBI as indicative of the regulator's intention to deter future malpractices. He noted how historically, detection of such frauds faced delays, but SEBI's swift intervention now showcases its readiness to target and dismantle deceptive practices expeditiously.
The broader implication of these regulatory actions is clear: SEBI is intensifying its surveillance of market activities. Sangeeta Jhunjhunwala from Khaitan Legal Associates projects prospective heavier scrutiny of companies exhibiting unusual market behavior and hints at the possibility of implementing tougher penalties for companies involved with fraudulent schemes.
Further, there are concerns for investors affected by BGDL's trading suspension. Many individuals who bought shares at inflated prices could face significant financial losses, overwhelmed by the realization of misleading disclosures. Chirag M Shah, senior securities attorney, emphasized, “If there was misrepresentation leading to defrauding investors, SEBI was obligated to act,” reiteration the pressing need for immediate intervention, even if it leaves investors momentarily without liquidity.
SEBI's actions, serving both as punitive measures and protective barriers for investors, reflect urgent needs for corporate accountability. While presently affecting companies like PNB MetLife and BGDL, this could serve as a cautionary tale and bolster the integrity of the Indian securities market across the board.
