SEBI bars 3 brokers for rigging

The Securities and Exchange Board of India (SEBI has suspended three brokers for their involvement in the price manipulation in the scrips of BPL, Sterlite and Videocon in June 1998 on completion of enquiry proceedings against them. The brokers Mefcom Securities Limited (member of the Bombay Stock Exchange and National Stock Exchange) and Lalkar Securities Private Limited (member BSE) have been suspended for 18 months while P R Shah Share and Stock Broker Private Limited (member of BSE) has been suspended for 24 months commencing from the date of delinking of their trading terminals. “After considering the recommendations of the enquiry officer, submissions made by these brokers and material evidence available on record, it was found that these brokers were involved in the manipulations,” SEBI said. These three brokers, along with 15 other brokers, were earlier suspended for trading by the market regulator till the final decision – which was announced by the SEBI today. SEBI had earlier asked thepresident of the BSE, J C Parikh, and vice president, R C Banthia executive director of the BSE, R C Mathur to relinquish their offices. SEBI investigation has revealed that the three brokers guilty of violating the SEBI Act, 1992 (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) regulations 1995, SEBI (Stock brokers and sub-brokers) regulations, 1992 and its Code of Conduct and bye-laws of the exchange where they are members. The brokers suspended today dealt for common set of clients, the Damayanti group, allegedly associated with big bull Harshad Mehta. SEBI investigations revealed that these common clients did not have any professional expertise in the securities market and financial soundness to deal at such a large scale. These brokers had also not charged any upfront margins from these clients, SEBI added. SEBI is now investigating the role of the promoters of these companies and of Harshad Mehta. “The investigation is nearing completion and the orders wouldbe issued shortly,” SEBI officials said today. P R Shah and Lalkar were found to have exchanged kaplis (transfer note) with other brokers on behalf of its clients, Damayanti Group, in violation of the prohibition of SEBI. According to SEBI, this period of suspension will be reckoned from the date when the trading terminals were switched off by the BSE, therefore, the suspension in respect of Mefcom Securities, PR Shah Share and Stock Broker and Lalkar Securities will be effective till December 9, 1999, June 14, 2000 and December 14, 1999, respectively. Investigations prima facie were initiated against 18 brokers which revealed that some brokers acting in concert for a common set of clients built up unusually large positions in these scrips resulting indistortion of the market equilibrium and creation of artificial market. The trading terminals of these brokers were switched off by BSE earlier. The trading terminal of Mefcom was switched off on June 10, 1998 and those of P R Shah and Lalkar on June 15 1998.