SEBI bans 2 operators from markets for fraudulent trades
What's the story
The Securities and Exchange Board of India (SEBI) has banned two market operators, Shivprasad Pattiya and Alkesh Narware, from trading for three years. The ban comes after the duo was found guilty of creating artificial volumes in illiquid stock options and deceiving investors. They have also been ordered to disgorge ₹4.83 crore, which represents the illegal gains obtained through their activities.
Deceptive tactics
Operators lured investors with promises of guaranteed returns
The SEBI order revealed that Pattiya and Narware had devised a plan to lure investors into market investments with promises of guaranteed returns. They employed callers who persistently contacted potential investors, promising profits through algo trades or automated software trades. Once they gained the trust of these investors, the operators obtained their login credentials and placed stock options bets in a way that resulted in losses for them.
Scheme exposed
What did the regulator find?
SEBI's investigation revealed that certain entities had conducted trades at prices away from fair prices in 'Out of the Money' stock options, consistently making a positive square-off difference. The National Stock Exchange (NSE) also received complaints from investors who claimed they had shared their credentials with WhatsApp group members for algo trading with promises of good profits. However, these trades led to losses amounting to lakhs.
Trade manipulation
How was the fraud executed?
The operators, through their callers, procured trading credentials from investors and placed buy orders in illiquid, near-expiry stock option contracts. Matching sell orders were placed from the trading accounts of the operators' front entities. The trades were structured to match in quantity and price, ensuring that the premium was transferred from the investor's account to these front entities. As a result, when contracts expired Out-of-the-Money, complainants lost their entire premium while front entities pocketed it as profit.
Penalties imposed
SEBI orders operators to return illegal gains
SEBI has ordered Pattiya and Narware to return their illegal gains of ₹4.83 crore with 12% interest from February 1, 2022. The market regulator has also restrained them from selling their investments. A penalty of ₹25 lakh each has been imposed on both operators for their fraudulent activities during the period between January 27, 2021, and February 1, 2022.