SEBI slaps Mehul Choksi with Rs.5 crores fine and 10 years ban from capital market
SEBI slaps Mehul Choksi with Rs.5 crores fine and 10 years ban from capital market
The penalty is to be paid within 45 days
The Securities and Exchange Board of India (SEBI) has barred fugitive businessman Mehul Choksi from the securities markets for a decade. A fine of Rs.5 crores has also been imposed on him for indulging in fraudulent trading in the shares of Gitanjali Gems Ltd (GGL).
The chairman and managing director and part of the promoter group of GGL, Choksi is the maternal uncle of Nirav Modi. The two are facing charges of defrauding the state-owned Punjab National Bank (PNB) of over Rs.14,000 crores.
They fled India in 2018 when the PNB scam was discovered. While Choksi is known to be in Antigua and Barbuda, Modi is lodged in a British prison. He has challenged India's request for extradition.
In 2020, SEBI fined a sum of Rs.5 crore on Choksi and GGL for violating various regulations, including listing norms, in connection with the massive fraud. Early this year, it prohibited Choksi from the securities markets for one year, levying a fine of Rs.1.5 crore for violating insider trading rules in GGL.
The present proceedings are a result of a common show-cause notice issued by the market regulator in May this year. It investigated the alleged manipulative trading in the scrip of GGL during July 2011-January 2012.
It was said that Choksi funded 15 'front entities' directly or indirectly connected with him and each other. They took a position in the scrip in cash and derivative segments. The fund transfers by the company to these entities were about Rs.77.44 crores. Out of that, Rs.13.34 crores were used to trade in the scrip.
SEBI noted that just before investigations began, the shares of GGL (excluding the promoter holding and holdings of banks/financial institutions/FPIs) available to the general investors was 28.96 percent for the quarter ending June 2011. It reduced to 19.71 percent in the quarter ending September 2011. Post investigations, the shares rose to 25.36 percent.
The market regulator maintained that through front entities, Choksi tried cornering the shares available in the market to reduce the shares available for the general investors. This increased after the entities sold the shares in the market. They also cornered the position limits in the company's scrip by building up substantially large positions in the derivatives segment.
Ashwani Bhatia, a whole-time member of SEBI stated in his 20-page order, "The findings coupled with the noticee's (Mehul C Choksi) failure to rebut these, clearly establishes his role in the creation of the false and misleading appearance of trading in GGL's scrip by using and funding the front entities in executing manipulated trades. The noticee violated the provisions of the Prohibition of Fraudulent and Unfair Trade Practices Regulations."
The market regulator restrained Choksi "from buying, selling, or dealing in securities, directly or indirectly, in any manner whatsoever. He is further prohibited from accessing the securities market for 10 ten years. The noticee shall pay a monetary penalty of Rs.5 crores."
