SEBI Cracks Down on Front-Running: Impounding of Rs 4.8 Crore in Illicit Gains

SEBI's Recent Action Against Front-Running Activities

On January 27, 2023, the Securities and Exchange Board of India (SEBI) issued an order addressing unlawful front-running activities within the securities market. SEBI's Whole-time Member Amarjeet Singh emphasized that the submission of a settlement application does not prevent the regulator from taking necessary actions to safeguard investor interests and preserve market integrity.

Impoundment of Unlawful Gains

As part of its ongoing investigation into these practices, SEBI has impounded over Rs 4.8 crore in illicit profits linked to the alleged front-running scheme. The order explicitly restricts a dealer from a brokerage, three authorized persons (APs) from another brokerage, and four associates implicated in the operation from participating in the securities market.

In his statement, Singh noted, "In the interest of justice, I am of the view that the unlawful gains generated by the Noticees need to be impounded on an immediate basis so that such funds are not disposed of by the Noticees."

Modus Operandi of the Front-Running Racket

The investigative findings reveal that Nirav Mahendra Sapani, a dealer at a brokerage firm, disseminated material non-public information (MNPI) about trades of a significant client to third parties. These individuals then executed trades ahead of the client, sharing the resultant profits with Sapani. Among those identified as front-runners were Ashish Kirti Kothari, Amit Kirti Kothari, and Neha Ashish Kothari, all of whom were APs at another brokerage.

Settlement Application Submission

During the investigation, Nirav Sapani informed SEBI that he filed a suo motu settlement application concerning the inquiry related to the front-running of trades by the significant client. However, the sent order notes that filing this application does not hinder the regulator's ability to initiate civil and administrative proceedings.

Singh referenced the provisions of regulation 8(2) of the Securities and Exchange Board of India (Settlement Proceedings) Regulations, 2018, which states that the submission of a settlement application shall not obstruct the initiation of any actions deemed necessary for issuing interim civil and administrative directions to protect investor interests and uphold the integrity of the securities market.

Conclusion

SEBI's decisive actions underscore its commitment to maintaining market integrity and investor protection. The ongoing investigation and imposition of restrictions on the involved parties signal the regulator's proactive stance against fraudulent market practices.