Cracking the whip in the HDFC Mutual Fund front-running case, capital markets regulator Sebi has ordered its former equity dealer Nilesh Kapadia, his wife Kalpana Kapadia and five other connected persons to disgorge Rs 3.35 crore worth of illegal gains made by them.
The order follows an investigation by the Securities and Exchange Board of India (Sebi) into the matter of front-running by certain entities between June 2000 and June 2010.
In its probe, Sebi found that Nilesh Kapadia, who had been the equities dealer for HDFC AMC since June 2000 till 2010, had passed on information and instructions to his wife and others before placing the orders for HDFC AMC.
On the basis of such information and instructions from Nilesh, Rajiv Sanghvi indulged in front-running the trades of HDFC AMC and traded in the accounts of Rajiv Sanghvi, Rajiv Sanghvi-HUF (Hindu Undivided Family), Sanjay Sanghvi, Sonal Sanghvi and Dipti Mehta.
Besides, similar front-running activities were observed in the trading account of Kalpana Kapadia.
"In view of such trading pattern, Rajiv Sanghvi, Rajiv Sanghvi-HUF, Sanjay Sanghvi, Sonal Sanghvi, Dipti Mehta and Kalpana Kapadia made substantial profits. These profits would not have resulted if Nilesh Kapadia had not passed the information of the impending large orders of HDFC and instructed them accordingly," Sebi said.
"As Kalpana Group (Kapadias) had front-run HDFC trades, HDFC had lost the price advantage in these trades and the profit made in the trading accounts of Kalpana, is the loss of price advantage to the HDFC, it added.
"These trades were executed in fraudulent manner by Nilesh and Kalpana who had acted in concert, to defraud HDFC. These trades had created false or misleading appearance of the trading in the securities market," Sebi noted.
Considering that seven persons (including Rajiv Sanghvi HUF) had acted together for deriving such undue profits, it is appropriate and reasonable to make them liable, jointly and severally, for the profits, it added.
Accordingly, in an order dated January 15, Sebi has directed Nilesh Kapadia and Kalpana Kapadia to impound the unlawful gains of about Rs 1.18 crore (including an interest).
Further, the regulator has ordered Nilesh Kapadia, Rajiv Sanghvi, Rajiv Sanghvi-HUF, Sanjay Sanghvi, Sonal Sanghvi and Dipti Mehta to impound the "unlawful gains of a sum of Rs 2.17 crore (including interest) jointly and severally."
Front-running refers to an unethical practice of 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.
