SEBI exposes modus operandi of how operators in penny stocks execute manipulative trades

Discussion in 'Must-Read Interviews, Articles & News Items' started by Arjun, Jan 9, 2021.

  1. Arjun

    Arjun Chief Executive Officer (CEO) Staff Member

    Mar 19, 2015
    Likes Received:
    Securities and Exchange Board of India (“SEBI”) noticed an unusual movement in the price in the scrip of Anukaran Commercial Enterprises Limited (“Anukaran/the Company”) and undertook an investigation relating to the trading activities in the scrip of Anukaran, to ascertain whether the unusual price movement so noticed in the scrip was normal or it was caused by unscrupulous acts leading to any possible manipulation of the price of the scrip of the Company.

    The investigation undertaken by SEBI revealed that the price of the scrip saw an abnormal rise, which was not supported by any corporate announcements or material changes in the business activities of the Company. The first trade was executed at INR 35.15 whereas the last trade was executed at INR 256.25 and the scrip witnessed a sharp increase in price by INR 221.20 with just 60 trades executed within a period of 43 trading days.

    It was noticed that 16 entities had sold the shares of Anukaran at a price higher than the last traded price (“LTP”) and contributed to the positive LTP. The investigation further revealed that out of the said 16 sellers, top 03 sellers have contributed more than 65% to the market positive LTP variance of the scrip.

    SEBI noticed that some of the sellers were selling their shares in miniscule quantities, despite having sufficient quantities of shares in their respective demat accounts. These sellers were also on a continuous basis executing trades at a price higher than the LTP.

    SEBI held that, considering the manipulative mode and unusual manner of selling shares by the parties in the scrip of Anukaran over a substantial period of time, such a trading practice was apparently motivated towards sending a false and misleading impression to the market at large, about the trading activities in the scrip of Anukaran so as to artificially induce other investors to trade in the scrip.

    The repetitive sell orders which led to his contribution of INR 96.35 to the LTP and INR 142.20 are material enough to establish that the trades executed by him were not genuine but were executed with fraudulent and manipulative intent.

    SEBI also held that the role of the parties is significant in contributing substantial amount of LTP to the scrip of Anukaran. The extra ordinary exuberance shown by him while selling the shares of Anukaran and thereby contributing to LTP with each such trade, can’t be held as trades executed in normal course of investment activities to maximize the profit.

    The noticee never preferred to sell shares in large quantity to seize the price benefit, which exposes nothing but his manipulative and fraudulent intent to deal with the scrip with a stock of 100 shares acquired through off-market deal, only to disrupt the price discovery process in the scrip, it concluded.

    Ultimately, SEBI held that considering the frequency of trades, volume of shares underlying such trades, impact of market positive LTP and consequently artificial price rise of the scrip on the investors, it would in the interest of investors that the Securities Market is insulated from such offending noticees, and accordingly, all the noticees were restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, for a period of six (06) months from the date of the order.

    SEBI also held that during the period of restraint, the existing holding of securities including the holding of units of mutual funds of the Noticees shall remain frozen.

    Click here to read the full order on SEBI's website