Sebi bans Mehul Choksi from securities market for 10 years, fines Rs 5 cr

Choksi is already facing Income Tax department and ED action

The Securities and Exchange Board of India (Sebi) on Monday barred fugitive businessperson Mehul Choksi from accessing the securities market for ten years and imposed a penalty of Rs 5 crore for manipulative trading in stocks of Gitanjali Gems Ltd (GGL).

The Sebi order said that Choksi used front entities to undertake contra trades and derivatives transactions ‘to help him in maintaining the price of the scrip of GGL, so that his pledged shares were not invoked or that he did not have to pay additional margin money to the lenders’.

Sebi had earlier sentenced individuals to imprisonment for failing to pay the penalty in similar cases. Choksi has been given 45 days to pay the penalty.

In an earlier order in January this year, Sebi had prohibited Choksi from the securities market for one year for violating insider trading regulations. Moreover, Gitanjali Gems was suspended from the stock exchanges in April 2019.

The market regulator’s order comes when Choksi is already undergoing action by the Income Tax department, and an application filed by the Directorate of Enforcement to declare him a fugitive economic offender is pending before Bombay High Court in the Punjab National Bank scam case. Choksi is said to be residing in Antigua and Barbuda, the Sebi order said.

In the latest order, Sebi whole-time member Ashwani Bhatia said, “Entities had taken long position, both in the cash segment and the derivatives segment, wherein they had incurred significant losses while trading as such in the derivatives segment.” He added that these trades were not for hedging purposes but for maintaining the price and volume of the scrip to benefit Choksi.

Sebi had investigated trading activities of certain GGL entities between July 18, 2011 and January 25, 2012. The show cause notice alleged that the company was both transferring and receiving funds from the suspected entities and these amounts were either utilised for meeting pay-in and margin obligations towards brokers, or were pay-outs received from exchanges that were ultimately transferred back to GGL.

While being the chairman and managing director at Gitanjali Gems, Choksi funded 15 entities to take positions in the scrip of the company. GGL had transferred Rs 77.44 crore of which Rs 13.33 crore were used to trade in the scrip, said the order.

Sebi in its order added that Choksi did not respond to the regulator’s show cause notice and failed to appear for hearing.