Sebi on Monday barred Mehul Choksi from accessing the securities market for 10 years and imposed a penalty of Rs 5 crore, following a probe into manipulative trading in the scrip of Gitanjali Gems (GGL). Sebi had conducted an investigation into trading activities of 21 entities in the scrip of GGL for the period July 18, 2011 to January 25, 2012 (investigation period).
Trading in the derivatives on the shares of GGL was introduced for the first time during the investigation period. The show cause notice issued on May 24, 2022 alleged that a number of front entities had taken positions in cash and derivative segments through motivated trades and engaged in creation of false and misleading appearance of trading in the scrip of GGL during the period.
A large number of shares held by Choksi in GGL during the investigation period were pledged. Examination of the trading pattern of the front entities, some of which were incorporated during the year 2011, showed that these entities had not transacted in derivatives of any other stock, except GGL, during the IP. The front entities were used by Choksi to maintain the price of the GGL scrip to ensure that his pledged shares were not invoked and he did not have to pay additional margin money to the lenders.
Choksi being a director of GGL, was prohibited from entering into contra trades and was not allowed to undertake derivatives transactions in the shares of GGL. “It thus appeared that in view of the said prohibitions, the noticee had employed the front entities to take such positions. It was apparent that the trades of these entities in the derivatives segment were not for hedging purposes and were not executed in the normal course of dealing in securities, but for maintaining the price and volume of the scrip of GGL,’ the 20-page Sebi order on Monday observed.
The shares of GGL available to general investors stood at 28.96% for the quarter ending June 2011, which got reduced to 19.71% in the quarter ended September 2011 during the investigation period. This rose to 25.36% after the investigation period.