SEBI Directs Stock Brokers to Disgorge Unlawful Gains Made by Using Non-Public Information in Violation of PFUTP Norms

Case Details: Rohit Salgaocar, In re - [2025] 170 taxmann.com 454 (SEBI)

Judiciary and Counsel Details

• Kamlesh C. Varshney, Whole Time Member

Facts of the Case

In the instant case, a big client was a US-based fund house with various funds registered as Foreign Portfolio Investors with the SEBI. Traders of big clients used to discuss trade-related information with ‘RS’, a Singapore-based trader (noticee no. 1), to ensure counter parties for their trading, and thus, ‘RS’ allegedly had access to non-public information (NPI) with respect to substantial impending transaction of big client.

Noticee no. 1, along with noticee no. 2 i.e. ‘KP’ (whom SEBI had debarred from the stock market) devised a scheme where ‘KP’ was obtaining NPI about impending orders of big clients from ‘RS’, who then instructed other noticees, i.e. front runners (FRs) to take counter positions to match with the position of a big client.

This would lead to FRs either squaring off of their initial position taken in scrip or creating excess long or short position in scrip, which they eventually square off during day and thus generated huge illegal gains in a short span of time.

SEBI Held

SEBI observed that from WhatsApp data available on devices found during search and seizure operation at the premises of all noticees, statements made by FRs/ facilitators and analysis of bank statements of various entities, it was gathered that there were numerous fund transfers, both through cash and bank transfers, between noticees, indicating profit-sharing from fraudulent activities.

SEBI held that the trades executed by all noticees were found to be in violation of section 12A of the SEBI and regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice Relating to Securities Market) Regulations, 2003. Consequently, noticees were prohibited from accessing the securities market and directed to deposit total unlawful gains amounting to approximately INR 65.77 crores.

List of Cases Reviewed

• Madhu Chanda and others v. SEBI, Appeal No. 335 of 2023, Date of decision: October 30, 2023 (Para 190) followed.

List of Cases Referred to

• KK Ahuja v. V.K Arora 2009 10 SCC 48 (para 194).