Front running case: Sebi bans 5 from mkts for 1 year, impounds Rs 1.53 cr

Capital markets regulator Sebi on Friday barred five individuals from the securities markets for one year and directed them to impound illegal gains of nearly Rs 1.53 crore made from their front-running activities.

The regulator also imposed a penalty of Rs 10 lakh on Nikhil Khaitan, and Rs 5 lakh on Om Prakash Khaitan, Manju Khaitan, Neha Khaitan, and Nidhi Tibrewal.

Front-running refers to an illegal practice in the stock market where an entity trades based on advanced information from a broker or analyst before the information has been made public.

"... noticee No 1 (Nikhil Khaitan), while being dealer of the Big Clients and having knowledge of... impending orders, front ran the trades of big clients by using trading account of the FRs (Noticee No. 2, 3, 4 and 5) during the IP (investigation period) and gained benefit from non-public information," Sebi said in a 49-page final order.

Sebi also stated that the noticees in the process of front running trades of the big client have not only interfered with the market forces of supply and demand of a particular scrip but have also artificially influenced the price and volume of the scrip and have thus, prima facie distorted them.

Therefore, the five individuals have violated PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.

The regulator noted that Nikhil, through Om Prakash, Manju, Neha and Nidhi's accounts, engaged in front running trades for six years.

"I note that all the noticees are liable to disgorge the wrongful gains which were made by front running the trades of big client," Sebi's Quasi-Judicial Authority G Ramar said in the order.

Accordingly, the Sebi has restrained Khaitan family and Nidhi Tibrewal from the securities market for one year.

The markets watchdog said Nikhil and the front-runners -- Om Prakash, Manju, Neha and Nidhi -- together in collusion, took advantage of the orders/trades of Big Client by front running the orders/trades of big client and earned huge profits.

Additionally, Sebi directed the noticees (Khaitan Family and Nidhi) to disgorge, jointly and severally, a sum of Rs 1.52 crore within 45 days from the date of this order.

The order came after the Securities and Exchange Board of India (Sebi) had conducted an investigation in the matter of trading activities of members of Khaitan family, front running the trades of certain entities (Big Clients) on the basis of Sebi's alert in various scrips.

The probe was conducted from September 2016 to August 2022.