SEBI Bans 9 Entities From Stock Market: Here’s Why

SEBI’s Action: Markets regulator SEBI has uncovered a front-running scheme involving PNB MetLife India Insurance Company equity dealer Sachin Bakul Dagli and eight other entities, who generated illegal gains of Rs 21.16 crore.

The front-running by these entities continued for more than three years. SEBI, through an interim order, prohibited Sachin Bakul Dagli and eight other entities from the securities market and impounded the unlawful gains made by them.

In a statement on Sunday, PNB MetLife stated that it has fully cooperated with SEBI in the investigation and taken disciplinary action against the individual involved.

“In line with our internal processes, we have taken disciplinary action. PNB MetLife is committed to upholding the highest standards of corporate governance, transparency, and integrity,” the statement noted.

Examination Into Suspectected Entities

SEBI had conducted an examination into the suspected front-running of the trades undertaken by the Big Client, PNB MetLife India Insurance, by certain entities.

The focus of the investigation was to ascertain whether the suspected entity(ies) had front-run the trades of the Big Client in connivance with other entities, including dealers and/or fund managers, if any, and thereby violated the provisions of SEBI’s PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules and the SEBI Act.

The investigation period has been taken from January 1, 2021, to July 19, 2024.

In its investigation, SEBI found that most of the trading decisions in PNB MetLife were delegated to Sachin Dagli for execution.

The regulator, in an interim order passed on Friday, noted that Sachin Bakul Dagli (equity dealer, PNB MetLife) and his brother Tejas Dagli (equity sales trader, Investec) accessed confidential, non-public information about impending trade orders of PNB MetLife and Investec’s institutional clients.

They used this information to make trading decisions and shared it with Sandeep Shambharkar, who executed front-running trades through the accounts of Dhanmata Realty Pvt. (DRPL), Worthy Distributors Pvt. (WDPL), and Pragnesh Sanghvi.

Directors of DRPL and WDPL, including Arpan Kirtikumar Shah, Kabita Saha, and Jignesh Nikulbhai Dabhi, were also involved in facilitating this scheme.

This group colluded to create and execute a fraudulent front-running scheme, violating the SEBI Act and Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, resulting in unlawful profits.

Six Thousand Cases Of Front-Running Trades

Trades were executed using non-public information shared via chat platforms. A Buy-Buy-Sell or Sell-Sell-Buy trading pattern was used to profit from market movements caused by large client trades.

“Altogether, 6,766 instances of such front-running trades were observed in the account of DRPL, WDPL, and Pragnesh Sanghvi and resultantly, unlawful gains of Rs 21,15,78,005 were made by these entities,” SEBI noted.

The front-running activities through the accounts of suspected entities DRPL, WDPL, and Pragnesh Sanghvi have continued for a significantly long period of more than three years, it added.

Accordingly, SEBI has restrained these entities “from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders.”

Additionally, “an amount of Rs 21,15,78,005, being the total unlawful gains earned from the alleged front-running activities, is impounded, jointly and severally” from the nine entities, the regulator said.