Sebi bars four entities for front running trades

Market regulator barred K B Patel, Dipak Patel, Anandkumar Baldevbhai Patel & Bhoomi Industries from capital market for five years

Clamping down on a front running case, Sebi on Tuesday barred three persons as well as a company from the capital market and directed one of the individuals to disgorge illegal gains worth over Rs 85 lakh.

The matter relates to Passport India Investment (Mauritius) Ltd, a sub-account of foreign institutional investor Passport Capital LLC, where it was found that one KB Patel was front running the trades of Passport India.

Dipak Patel, who managed the investment research process and took investment decisions for Passport India, had passed on information related to impending trade orders to KB Patel, who is his brother.

"On the basis of such information, KB Patel has placed orders through the internet. Thereafter, when Passport India had placed its orders through Dipak Patel, KB Patel's orders were squared off. Further, KB Patel had made profits caused due to the price fluctuation because of the large orders of Passport India," Sebi said.

In its 22-page order, Sebi barred KB Patel, Dipak Patel, Anandkumar Baldevbhai Patel and Bhoomi Industries from the capital market for five years.

The period of restraint undergone by the entities following interim orders in 2010 and 2011 would be taken into account while computing the five-year ban period.

Besides, Dipak Patel has been directed not to associate himself with any Sebi-registered entity for five years.

According to the regulator, KB Patel should disgorge Rs 85.18 lakh within 45 days and in case of failure, he would be banned from the securities market for another three years.

The amount would be in addition to Rs 1.13 crore – unlawful gains made through trades executed in NSE – that is already deposited with that stock exchange.

Investigations into the matter was done for the period from January 1, 2007 to March 31, 2009.

According to Sebi, AB Patel had received information from Dipak Patel and also received funds from KB Patel from the sale proceeds, which were then transferred through Bhoomi Industries.

Bhoomi Industries is a partnership firm between KB Patel and AB Patel.

Front-running refers to an unethical practice of someone trading in shares on the basis of advance information given by a broker, analyst or other executive at a market intermediary before the trades are conducted by that entity.