SEBI debars BSE member for one year for circular trading

SEBI debars BSE member for one year for circular trading

Vishal Vijay Shah was found to be a habitual offender with utter disregard for rules.

Market regulator Securities and Exchange Board of India (SEBI) on 8 January 2021 debarred the Noticee (Vishal Vijay Shah) from being employed or associated with any registered intermediary or other registered person dealing in the securities market, directly or indirectly and in any other manner, for one year.

In this matter of Maharashtra Polybutene Ltd., in terms of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (Intermediaries Regulations), a proceeding was initiated by Securities and Exchange Board of India (SEBI) against Vishal Vijay Shah (Noticee), Member, Bombay Stock Exchange and a stockbroker registered with SEBI.

For the said purpose, SEBI appointed a Designated Authority (DA) under Regulation 24(1) of the Intermediaries Regulations to enquire into the violations alleged to have been committed by the Noticee and to submit a report.

The DA noted in his Enquiry Report that the Noticee, being the stockbroker, had repeatedly purchased shares of Maharashtra Polybutene Limited (MPL/ Company) from the market in the name of his three clients viz. Saurabh Chandrakant Nagarsheth (Saurabh), Kamlesh Lalitkumar Nagarsheth (Kamlesh) and Viipul Bhagwandas Shah (Vipul) but transferred those shares to 13 other entities in off-market transactions, instead of transferring the shares to the demat accounts of the above-stated clients' accounts. It was further noted that thereafter, the Noticee purchased 83,547 shares back from the said 13 entities into the demat accounts of Saurabh, Kamlesh and Vipulby way of market transactions.

The above acts of indulging in selling shares on off-market to the 13 entities and then buying shares from those 13 entities by the Noticee into the accounts of his three clients through the market was viewed as an act of indulging in circular trading and thereby creating artificial volume in the scrip of Maharashtra Polybutene Limited (MPL/Company).

In accordance with regulation 27 of the Intermediaries Regulations, the DA recommended for suspension of the Certificate of Registration of the Noticee as a Stock Broker (INB011277614) for six months.

The Whole Time Member (WTM) was constrained to observe that the documents available on record were sufficient enough to bring home the charges levelled on the Noticee. The evidence on record coupled with the absolute silence on the part of the Noticee, ostensibly suggested the misuse of account of the clients and securities for creating artificial volume in the scrip of MPL during the investigation period. Accordingly, it was beyond doubt that the Noticee had indulged in circular trading in the scrip of MPL to create artificial volume in the scrip of MPL for which he used the accounts of his clients and securities therein, flagrantly in violation of the SEBI Circular No. SEBI/MRD/SE/Cir–33/2003/27 dated 27 August 2003 and Clauses A(1), (2), and (5) of the Code of Conduct of Stock Brokers as specified in Schedule II of Regulation 7 of the Stock Brokers Regulations.25.

The violations committed by the Noticee in the present proceeding were neither the solitary ones nor were the violations committed by him for the first time in his career as a stock broker. The Noticee, in fact, had a history of misutilization of clients funds and securities for which he had been repeatedly found to have acted in violations of various provisions of securities law, for which penalties had been imposed on him from time to time and at the same time, his certificate of registration as a stockbroker had also been suspended for different periods from time to time by SEBI.

Further, the certificate of registration of the Noticee had already been cancelled. It was noted that the DA in his report had recommended for suspension of registration of the Noticee as a stockbroker of BSE. However, meanwhile, the registration of the Noticee (Vishal Vijay Shah) as a stockbroker of BSE had already been cancelled.

The Noticee had obtained registration as a broker in his individual capacity which stood cancelled in view of the order passed by SEBI. It was pertinent to note that the violations for which the registration of the Noticee had been cancelled were committed by him in his individual capacity as a stockbroker and his career as an individual stockbroker was replete with various fraudulent activities such as circular trades, synchronized trades, misutilization of clients' funds and securities for which he had been penalised repeatedly from time to time. The Noticee also had a history of non-cooperation with SEBI and had not complied with the Notices and summons and had also not appeared for cross-examination before SEBI.

The WTM was of the view that such conduct on the part of the Noticee clearly showed his utter disregard for market integrity, compliance requirements of SEBI or even directions given to him by SEBI, be it for submission of any information or appearance for the purpose of cross-examination.

According to the WTM, the Noticee's continued association in his individual capacity with securities market in any manner might not be in the interest of the securities market and might pose a serious risk to the market and may also jeopardise the interest of general investors. Therefore, in light of the above, it became necessary that suitable firm measure be taken against the Noticee in the interest of the securities market to protect the interest of the investors.