Sebi Takes Action: 7 Entities Barred, Rs 35 Lakh Disgorgement in Front-Running Case

In a significant move to curb illegal practices in the securities market, the Securities and Exchange Board of India (Sebi) has barred seven entities from participating in the market for up to three years. The entities were found to be involved in front-running the trades of Sanctum Wealth Management, now known as Sanctum Wealth.

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Front-Running: An Illegal Practice

Front-running refers to the unethical practice where an entity trades based on advanced information obtained from a broker or analyst before that information is made available to clients. This practice gives the entity an unfair advantage over other market participants and can lead to significant losses for investors.

Entities Barred and Penalties Imposed

Sebi's order prohibits Kishan Vishram Nanda, the key individual involved in the front-running scheme, from the securities market for a period of three years. Six other entities related to Nanda have also been barred for one year. Additionally, Nanda has been imposed a fine of Rs 5 lakh.

Disgorgement of Unlawful Profits

The seven entities have been directed to disgorge a total sum of Rs 34,84,605, representing the unlawful profits made through front-running activities. This amount will be subject to an interest rate of 12% per annum.

Sebi's Surveillance System

The case came to light due to an alert generated by Sebi's surveillance system, which detected suspicious trading patterns involving Sanctum Wealth. This highlights the effectiveness of Sebi's monitoring mechanisms in identifying potential violations and protecting investors' interests.

Investigation and Findings

Sebi conducted a thorough investigation into the matter, covering the period from January 1, 2018, to April 2, 2021. The investigation revealed that Nanda, as an equity dealer in Sanctum's broking arm, had access to non-public information regarding impending trade orders of the company's PMS arm, Sanctum PMS. This information was then used to front-run trades through Nanda's HUF account and proxy trading accounts belonging to his family members.

Sebi's actions serve as a strong deterrent against front-running and other manipulative practices in the securities market. By taking swift and decisive action, the regulator reinforces its commitment to ensuring fair and transparent market practices, protecting the interests of investors, and maintaining the integrity of the Indian capital markets.