SEBI holds Anukaran Enterprises promoters guilty of price manipulation

SEBI holds Anukaran Enterprises promoters guilty of price manipulation

The regulator said that one need not establish direct quantified/loss to an investor in 'personam' to prove price manipulation.

Securities and Exchange Board of India (SEBI) noticed an unusual movement in the price of Anukaran Commercial Enterprises Limited's scrip and undertook an investigation relating to the trading activities in the company's scrip to ascertain whether the unusual price movement was normal or if it was caused by unscrupulous acts leading to any possible manipulation.

The board observed, "that establishment of direct quantified damage/loss to an investor in 'personam' is not an essential ingredient to prove the charges of the price manipulation. The very acts of marking up the price of a scrip higher by manipulative trading practices even by a selected few persons can induce the investors in rem."

The investigation period was divided into multiple patches for convenience of analysis. Price of the scrip in Patch 1 saw an abnormal rise, which was not supported by any corporate announcements or material changes in the business activities of the company. In this period, the first trade was executed at Rs. 35.15 whereas the last trade was executed at Rs. 256.25 and the scrip witnessed a sharp increase in price by Rs. 221.20 with just 60 trades executed within a period of 43 trading days. During Patch 1, it was noticed that 16 entities sold the shares of Anukaran at a price higher than the last traded price (LTP) and contributed to the positive.

The Noticee(s) further raised that the instant proceedings are required to be dropped on the ground of delay. It was stated that the trades alleged to be manipulative were executed in the year 2012, whereas the Show Cause Notice (SCN) has been issued in the year 2018.

However, the board clarified, it did not find any reason or infirmity to drop the charges on the ground of delay as claimed by the Noticees. The extant framework of SEBI Act, 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations) does not prescribe limitation period for initiation of action against any wrongdoer for the violations of the said enactment and rules and regulations made thereunder.

Notwithstanding the above, in order to ascertain as to whether there was any delay in the matter, which could be held as so inordinate that it results in causing prejudice and continuation of the same tantamount to the miscarriage of justice. The date when the violation came to the notice of SEBI, would be the relevant point and not the date of the actual commission of the said violation. Whether a delay in a particular case is justified or not depends on the facts and circumstances of that case, added the board.

The board felt it necessary to cite Regulation 3 of PFUTP Regulations which deals with prohibition of certain dealings in securities and Regulation 4 of PFUTP Regulations which states the prohibition of manipulative, fraudulent and unfair trade practices.

The board pointed out that Noticee No. 1 indulged in the execution of sell trades with a minimum possible lot on each day, with an apparent motive to set a high closing price of the scrip. The said objective further finds strength from the background fact that the Noticee No. 1, who bought shares in an off-market transaction from the Noticee No. 2 presumably impressed by the future prospect of the scrip, indulged in the execution of sell order in tiny quantities immediately after receipt of shares from Noticee No. 2, successively contributing to the LTP and resultantly to the price rise of the scrip.

"Such a trading behaviour does not reflect any genuine intention to maximize the profit the way a prudent seller would have behaved and sold his shares to maximize his profits. The trading pattern followed and the explanations offered before me are beyond any business rationale which cannot justify or legitimize such unfair and manipulative trades indulged in by the Noticee No. 1 just to maximize profit. The market is governed by written rules and well-established market practices have evolved over the period of time and any person resorting to any peculiar pattern of trading which has a cascading effect of distorting the market mechanism by way of creating artificial trading, leading to rise in the price of a scrip through manipulative trades by no means can be held as normal and fair trading in the market", the board observed.

The Board after foregoing factual analysis ruled that Noticee Nos. 1, 3 and 4 by way of their trades which were established to be manipulative and unfair, have distorted the price discovery mechanism of the Securities Market. By executing manipulative trades repeatedly at higher prices, the Notice Nos. 1, 3 and 4 were able to trigger a rapid rise in the price of the scrip, which was not real but only an outcome of manipulative trades and hence were in violation of Regulation 3 (a), (b), (c), (d) and 4 (1), 4(2), (a) and (e) of PFUTP Regulations.