HOST AND FAMILY MEMBERS OF STOCK RECOMMENDATION SHOW BANNED FROM MARKETS – Eshwars
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HOST AND FAMILY MEMBERS OF STOCK RECOMMENDATION SHOW BANNED FROM MARKETS

Authored by Aishwarya Lakshmi VM

In the matter of: CNBC Awaaz ‘Stock 20-20’ Show co-hosted by Mr. Hemant Ghai

Date of the interim order: 13.01.2021

Provisions invoked

(a) Sections 11(1),[i] 11(4),[ii] and 11D[iii] of the Securities Exchange Board of India Act, 1992.

(b) Regulation 3(c), 3(d)[iv] and 4(1)[v] of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003.

Facts of the case:

1. Hemant Ghai was the co-host of ‘Stock 20-20’ aired in CNBC Awaaz from 7:20 A.M to 7:50 A.M. The show gave buy and sell recommendations for intra-day trading in stocks.

2. The trading account of the wife and mother of Mr. Hemant Ghai viz., Ms. Jaya Hemant Ghai and Ms. Shyam Mohini Ghai were preliminarily examined by SEBI and it was found that between January 1, 2019 to May 31, 2020 the trading accounts had made prima facie earnings of INR Two Crore and Ninety Five Lakhs merely through the BTST (Buy Today Sell Tomorrow) trading pattern.

3. As per investigation, the scrips traded in these accounts were the ones recommended by Mr. Hemant Ghai in his show. The investigation concluded that the modus operandi was to acquire the shares on the previous day through the trading accounts of Ms. Jaya Hemant Ghai and Ms. Shyam Mohini Ghai, and they were recommended Mr. Hemant Ghai in his show the following day. On the day of recommendation the scrips purchased the previous day were sold in the market at a profit.

4. SEBI preliminarily examined the issue and found a connection between the persons by relying on the KYC details submitted to the Registrar and Share Transfer Agents and Banks. Also details such as number of calls made to the equity analyst and the duration of such calls were used to corroborate the events and establish a preponderance of probabilities which may possibly involve the three persons.

Issues considered for preliminary examination:

1. Whether there is a repeated trading pattern in the previous day buying and post-recommendation selling in the trading accounts of Ms. Jaya Ghai and Ms. Shyam Mohini Ghai based on the recommendations of Mr. Hemant Ghai in the show he hosts?

2. If yes, whether the trading amounts to a ‘prima facie scheme, device or artifice’ in violation of the SEBI Act and Regulations?

3. Whether Mr. Hemant Ghai, his wife and mother are liable for proceeds of such prima facie violations?

4. If yes, whether urgent directions are to be issued?

Interim Order of the AO

1. SEBI relied on several cases of the Hon’ble Apex Court that reiterate the importance of a level playing field to keep the sanctity of the securities market intact and also the need for using circumstantial evidence to establish a plausible scheme that may have been adopted by the concerned persons.

2. SEBI passed an ex-parte interim order in the matter by deriving its power from Sections 11(1), 11(4) and 11D of the SEBI Act, 1992 for violation of Section 12A of the SEBI Act, 1992 and Regulations 3 and 4 of the SEBI (PFUTP) Regulations, 2003.

3. The directions issued by SEBI in the ex-parte ad interim order are as follows:

(i) The three persons were restrained from buying, selling or dealing in securities until further orders.

(ii) Hemant Ghai was ceased and desisted from undertaking, directly or indirectly, any activity related to giving investment advice, sell or buy recommendations, publishing of research reports etc., related to the securities market.

(iii) The bank account was impounded and the proceeds to be transferred to a joint escrow account.

(iv) Hemant Ghai, Ms. Jaya Hemant Ghai and Ms. Shyam Mohini Ghai were directed to provide a full inventory of all assets held in their name, jointly or severally, whether movable or immovable, or any interest or investment or charge on any of such assets, including details of all bank accounts, demat accounts and mutual fund investments.

(v) They were directed not to dispose of or alienate any of their assets.

(vi) A copy of the said order was sent to the Agent, the channel concerned and the News Broadcasting Standards Authority.

Regulatory issues that are to be noted from this decision of AO
1.     SEBI views violation of market sanctity in a very strict manner and any kind of scheme or device or artifice that may result in fraudulent and unfair trade practice is prohibited.

2.     SEBI has the power to impound and retain fraudulent proceeds even pending investigation and after completion of investigation or enquiry.

[i] 11. Functions of the Board: (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit.

[ii] 11(4): This clause provides the list of measures that can be taken by SEBI, either pending investigation or on completion of investigation or inquiry. These include suspending the trading account, restraining the persons from accessing securities market, impounding and retaining proceeds pending investigation etc.

[iii] 11D. Cease and Desist Proceedings: If the Board finds, after causing an inquiry to be made, that any person has violated, or is likely to violate, any provisions of this Act, or any rules or regulations made there under, it may pass an order requiring such person to cease and desist from committing or causing such violation.

[iv] 3. Prohibition of certain dealings in securities

(c)    employ any device, scheme or artifice to defraud in connection with dealing in or  issue of securities  which  are  listed  or  proposed  to  be  listed  on  a  recognized  stock exchange;

(d)  engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made thereunder

[v] 4. Prohibition of manipulative, fraudulent and unfair trade practices

(1)  Without prejudice to the provisions of regulation 3, no person shall indulge in a manipulative, fraudulent or an unfair trade practice in securities markets.

 

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