Sebi slaps 1-year ban on Shankar Sharma for fictitious trading

BS Reporter / Mumbai February 14, 2009, 0:21 IST

The Securities and Exchange Board of India today barred First Global Director and Chief Global Strategist Shankar Sharma from buying, selling or dealing in securities and from associating in the securities market for one year for fictitious trades during early 2001.
The order comes into effect “immediately after four weeks” from the date of communication of the order.
Sebi has, however, disposed the showcause notice against Sharma’s wife Devina Mehra, who is also a director of First Global. TV channel reports quoted Mehra as saying that First Global will appeal against the Sebi order against Sharma.
Sharma was earlier banned by the regulator for one year in 2001 but the order was set aside by the Securities Appellate Tribunal in 2004 on the ground that it was passed beyond the 30-day period prescribed under the then Regulation 29(3) of the Securities and Exchange Board of India (Stock Brokers and Sub Brokers) Regulations, 1992.
Today’s Sebi order, passed by M S Sahoo, wholetime director, said Sharma indulged in fictitious synchronized trading.
It said during the relevant period, Sharma executed huge quantities of trades as a client of Bang Equity. These trades of Sharma were matched through synchronized trades executed by Vrudhi Confinvest, which is a 100 per cent owned company of the Sharma and his wife, Devina Mehra, as a client of FGSB.
The details of these trades showed that there were hardly any time/quantity/price difference between the buy and sell orders for most of the trades. Sebi also observed that in most of the cases, the rate, the quantity and the timing of buy orders matched or were very close to those of sale orders. Therefore, the parties engaged in synchronized deals.
“These trades were nothing but fictitious trades and involved no change in beneficial ownership. Therefore, these created appearance of artificial market and distorted price discovery process in the exchange,” Sebi said.
It added that there was no doubt that that Bang Equity had executed the above trades for Sharma wherein the counter party broker was First Global. “In this regard, it is pertinent to mention that these transactions have already been examined by SAT in the matter of Nirmal bang Securities and Others.
SAT, while disposing of the said appeal, had held these trades to be synchronized in nature. SAT had recorded that these transactions executed by Bang Equity for Sharma as a client, were synchronized with counter party trades for client Vrudhi, executed through First Global.
The order said there was no room for doubt that Sharma indulged in fictitious trading by taking opposite positions at First Global and Bang Equity and by giving false orders for purchase and sale of securities, the execution of which involved no change in ownership.
“ We further find that the trading pattern of the noticees through Bang Equity and First Global was of a highly irregular nature and establishes that Sharma had indulged in a concerted attempt to interfere with the smooth functioning of the market and acted in a manner, which erodes the confidence of the investors and adversely affects the integrity and the healthy growth of the market,” the order said.
Referring to objections raised by Sharma that Sebi’s fresh showcause notices have become infructuous as it is based on a non est order, Sebi said that the notices had been issued under Section ii and 11B of the Sebi Act, 1992. The notices were not entirely based on the findings of the Sebi order dated September 12, 2002.