HDFC MF front-running case: Sebi slaps Rs 8.7 mn fine on 7 firms

In its latest order passed on Thursday, Sebi noted that the entities have disgorged the ill-gotten profits made by them along with interest in compliance with disgorgement orders

Markets regulator Sebi on Friday imposed a total fine of Rs 85 lakh on seven entities for flouting regulatory norms in the front-running of HDFC Mutual fund.

Front-running refers to an unethical practice by someone trading in shares on the basis of advance information given by a broker, analyst or other executive at a market intermediary before the trades are conducted by that entity.

Sebi in an order said the "trading pattern of the noticees that by indulging into front running the noticees had disturbed the market equilibrium and normal price discovery mechanism of stock exchanges, besides creating false or misleading appearance of the trading in the securities market".

The order follows an investigation carried out by Sebi into the matter of front-running by certain entities between June 2000 and June 2010.

The probe found that the entites made illegal gains by way of front-running.

According to the latest Sebi order, Rajiv Sanghvi made illegal gains to the tune of Rs 27,09,298, Rajiv Sanghvi-HUF (Rs 9,72,691), Sanjay Sanghvi (Rs 39,85,851), Sonal Sanghvi (Rs 20,03,481), Dipti Mehta (Rs 8,31,096) and Kalpana Kapadia (Rs 47,24,293).

Accordingly, the regulator in July 2018 had directed these to disgorge illegal gains made in the HDFC Mutual Fund front-running case along with the simple interest of 12 per cent per annum.

In its latest order passed on Thursday, Sebi noted that the entities have disgorged the ill-gotten profits made by them along with interest in compliance with disgorgement orders.

However, Sebi imposed monetary penalty "which acts as a deterrent to the noticees and to others against indulging in such fraudulent, deceptive and manipulative practice, which erodes the trust and confidence of investors in the securities market."

Therefore, Sebi imposed a fine of Rs 10 lakh each on the entities. Additionally, it also levied a fine of Rs 25 lakh on Nilesh Kapadia for misusing his position in the capacity of dealer of HDFC AMC.