Sebi slaps Rs 2 cr fine on 4 entities in HDFC AMC front-running case

Markets regulator Sebi on Thursday imposed a penalty totalling Rs 2 crore on four entities in HDFC Asset Management Company (AMC) front-running case.

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.

The regulator levied a fine of Rs 50 lakh each on Nilesh Kapadia and Dharmesh Shah, Rs 40 lakh on Ashok Nayak and Rs 60 lakh on IKAB Securities and Investments Ltd.

During the investigation period of October 2006 to June 2007, Kapadia, who was equity dealer with HDFC AMC between June 2000 to 2010, tipped Dharmesh Shah regarding impending HDFC AMC trades, Sebi noted.

Dharmesh Shah in turn facilitated 109 instances of front-running the trades of HDFC AMC.

These front-running trades were executed in trading accounts of Nayak and Bankim Shah, one of the dealer of IKAB Securities and Investments,among others.

Dharmesh Shah and Nayak were clients of IKAB Securities and Investments.

Kapadia and Dharmesh Shah "perpetrated a scheme of front running trades of HDFC AMC" with the help of Bankim Shah andIKAB Securities and Investments, Sebi said.

The conduct of four entities in relation to 109 instances of front-run trades of HDFC MF/AMC indicate that the "trades were front-run based on confidential information obtained and acted upon illegally to make wrongful gains at the expense of market participants who did not have this sensitive information," Sebi said in its 75-page order.

It further said that the four entities actually "distorted the market for the said shares, by causing premeditated non-genuine trades to take place with profits for the traders (at the cost of HDFC Mutual Fund and its investors as well as ordinary general investors) which were nearly guaranteed on account of confidential information selectively available to them."

By indulging in such activities, the entities violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms and accordingly, the regulator levied fine on them.

In November 2019,the regulator had levied a fine of Rs 25 lakh on Kapadia for misusing his position in the capacity of HDFC AMC dealer.