IIFL Dealer, 5 Others Barred from Securities Market

The Securities and Exchange Board of India (SEBI) has barred an IIFL employee, Santosh Brijraj Singh, along with five others from any transactions in the securities market for front running the trades of six funds managed by India Infoline Wealth (IIFL Wealth) using 'mule' accounts.

The SEBI order said that its alert system had generated front running alerts for the months of December, 2019 and March, 2020 against Virendra Pratap Singh and Neha Virendra Singh, suspected to be front running the trades of India Infoline Asset Management Ltd, part of India Infoline Wealth.

Front running refers to buying or selling securities ahead of a major transaction so as to benefit from the subsequent price move. This denotes persons dealing in the market, knowing that a large transaction will take place in the near future and that parties are likely to move in their favour.

The SEBI probe found that IIFL Wealth houses the management of all the mutual fund schemes, portfolio management services and alternative investment funds offered by the IIFL Group and it serves, among others, high net worth individuals and institutional clients through a range of services.

The market regulator conducted a preliminary examination for the period of December 1, 2019 to August 10, 2020. The probe found that IIFL Asset Management Limited, IIFL Select Series II, IIFL Multi-Strategy Fund, IIFL Long Term Growth Fund I, IIFL Focused Equity Strategies Fund - Capmetrics Investment Adviser and IIFL Special Opportunities Fund Series 5 were placing orders through the IIFL employee or dealer, Santosh Brijraj Singh.

Singh was found to be connected with certain entities, who were prima facie observed to have traded depending on the impending orders of the concerned funds.

"Subsequently, these entities squared off their positions when the orders of the big clients (the six funds) were placed in the market. Thus, they were able to generate substantial proceeds for themselves by placing orders in anticipation of the price movement of scrips on account of large buy/sell orders of the big clients," the order said.

The proceeds of the 'front run' trades were, on a regular basis, withdrawn from the linked bank accounts in cash, via ATMs, by entities who, prima facie, were not the holders of the said bank accounts.

The order said that from the material available on record, Adil Gulam Suthar, who is an ex-sub broker of a major broking house, was in constant communication with Santosh Singh during the concerned period.

Virendra Pratap Singh, Neha Virendra Singh, Gulammohammed Gulamabbas Shaikh and Mohammedidrish A. Shaikh were registered owners of the 'mule' account set.

"The aforesaid entities are restrained from buying, selling or dealing in the securities market or associating themselves with the securities market, either directly or indirectly, in any manner whatsoever till further directions," the interim order said.

The prima facie proceeds found to be generated from the front running was Rs 58.10 lakh. Adil Gulam Suthar and Santosh Singh have been directed to open an escrow account with a nationalised bank, jointly or severally, and deposit the amount within 15 days from the date of service of the order.