Sebi drops charges against two persons in IQMS Software case

Regulator said evidence did not suggest that Deepak Mehta and Nikunj Mehta had indulged in fraudulent trading activities in shares of IQMS

Market regulator Sebi has dropped the allegations of fraudulent trading against two individuals in a case related to dealings in shares of IQMS Software.

Securities and Exchange Board of India (Sebi) said evidence did not suggest that Deepak Mehta and Nikunj Mehta had indulged in fraudulent trading activities in shares of IQMS which included creating a false market or misleading appearance of trading in the scrip of the software company.

"... I give the benefit of doubt to Deepak Mehta and Nikunj Mehta in respect of the charges alleged against them in the SCN (Show Cause Notice) dated June 29, 2009 and do not deem it necessary to issue any direction as against them pursuant thereto," Sebi's whole time member Rajeev Kumar Agarwal said in an order dated October 3.

Sebi said material on record did not show that the two individuals, who are relatives, had connection with other entities that have been alleged to have acted in concert with each other to create a false market or misleading appearance of trading in the market, among others.

"The contribution of the trades of Deepak Mehta and Nikunj Mehta in the total traded volume (i.E. 8,77,758 shares) in the scrip of IQMS during the investigation period is also miniscule," the regulator said.

Besides, the regulator has "abated" the proceedings against late Satish Mehta, father of Deepak Mehta, on account of his death. Satish Mehta was also charged with fraudulent transactions in IQMS shares.

Sebi had conducted a probe into the dealings in IQMS shares for the period November 14 - December 15, 2000, wherein it found that an unusual rise in the price of the scrip was not backed by the economic fundamentals of the company.

It was observed that during the investigation period, the price rise in the scrip was due to trades executed by entities who were connected to each other, including the three Mehta family members, who were the original allottees in the IPO of the company that opened in September 2000.

Sebi found that these entities had traded amongst each other on a number of occasions and a majority of these transactions were reversed on the same day.