SEBI Penalises 8 Entities in Front-Running Case, Orders ₹1.29 Crore Disgorgement

The Securities and Exchange Board of India (SEBI) has imposed penalties totalling ₹1.5 crore on 8 entities for front-running trades linked to a portfolio management services client, as per a PTI report.  

The order also directs disgorgement of ₹1.29 crore, along with interest at 12% per annum. The recovered amount is to be transferred to the Investor Protection and Education Fund. 

The case relates to the use of advance information about large client orders. 

Flow of Information and Trades  

The regulator found that Ashok Maheshwari had access to confidential trading details of a large institutional client.  

This information was shared with Darshan Bakul Shah under an arrangement involving sharing of profits. 

Using this input, trades were executed ahead of the client’s transactions. The activity was carried out in a manner that allowed positions to be taken before the client’s orders reached the market. 

Use of Linked Accounts 

Trades were placed through multiple accounts, including those held by Shah, his wife Khusboo Darshan Shah, and a Hindu Undivided Family entity.  

The structure also involved connected entities such as Benzer Department Stores Pvt Ltd and CHL Stock Concepts Pvt Ltd. 

The order notes that the trades across these accounts showed a consistent pattern, indicating coordination among the entities involved. 

Findings from Investigation 

The regulator relied on digital records and trade data showing alignment in timing and pricing between the entities’ trades and those of the client. This pattern was considered evidence of prior access to non-public information. 

It also stated that front-running is driven by information asymmetry and is not dependent on the use of a particular broker or the liquidity of the stock. 

Additional Breaches and Penalties 

Mihir Dhirajalal Savla and Chirag Mahendra Shah were found to have made incorrect statements during the investigation. An additional penalty of ₹1 lakh each was imposed on them. 

Penalties ranged from ₹25 lakh for key individuals to ₹15 lakh for other entities. Certain participants have also been barred from accessing the securities market for specified periods. 

Restrictions  

Ashok Maheshwari, Darshan Bakul Shah and Chirag Mahendra Shah have been restricted from holding positions as directors or key managerial personnel in listed companies or registered intermediaries for 2 years. 

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Conclusion 

The order sets out the sequence of trades, the entities involved, and the use of advance information, based on the regulator’s findings. 

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