The Securities and Exchange Board of India (Sebi) on Thursday barred Fidelity employee Vaibhav Dhadda from dealing in the markets and ordered the freezing of his assets, after its probe prima facie showed that Dhadda and his mother and sister were responsible for pocketing gains through a front-running operation.
Interestingly, in order to establish link between Vaibhav -- who was using the alias Avi -- and his family members, the market regulator scanned his profile on the matrimonial website www.jainshubhbandhan.com.
Sebi found out that the PAN provided by Avi was registered in Vaibhav Dhadda's name. His passport details named Alka Dhadda as his mother. Further, his profile on the matrimonial site showed Alka as his mother. Also, she used the email id firstname.lastname@example.org.
The market watchdog said Vaibav was operating from Hong Kong and had access to the trading accounts of his mother and his sister Arushi.
The market regulator pointed out that there was aprima facie case of a trading pattern that had emerged in the accounts held by Arushi and Alka. It claims that the Dhaddas' modus operandi was to start picking up a stock just ahead of a buy placed by a Fidelity group entity on the same scrip. Likewise, the family would start sellling a particular stock just ahead of a sell order placed by the Fidelity company on the same scrip.
Some of the scrips in which these patterns were observed include Tata Communications, Shriram Transport Company and Gujarat Gas.
Sebi said the Dhaddas had encashed benefits worth Rs 1.86 crore using the front-running mechanism.
While the regulator observes that prior to May 29, both mother and sister had no investment experience whatsoever, their signatures on the bank account (used for transferring the funds) and on the trading accounts show that they were aware of their actions. Also, that fact that their trades were concentrated in scrips in which the 'big clients' traded, adds to their culpability in the front-running operation.
The regulator noted that an interim order was needed as Dhaddas may "divert the wrongful gains made from the front running trades... non-interference by the regulator at this stage would therefore result in irreparable injury to interests of the securities market and the investors".
The regulator directed the family members to deposit Rs 1.86 crore -- which is the alleged unlawful gains -- in the escrow of account of a nationalised bank.
Apart from banning the Dhadda family from the markets, the regulator directed them to provide "a full inventory of all assets held in their name, jointly or severally, whether movable or immovable, or any interest or investment or charge on any of such assets, including details of all bank accounts, demat accounts and mutual fund investments ".