Securities Exchange Board of India: A case was filed before SEBI originating from an investigation into the high correlation between trading activities of certain entities and stock recommendations provided by guest experts on Zee Business revealing a complex network involving profit-making entities, enablers, and guest experts allegedly sharing advance information for trading advantages. Kamlesh C Varshney, (Whole Time Member) held the guest experts, profit-making entities, and enablers in violation of SEBI regulations governing insider trading and fraudulent trade practices and imposed restraining orders, prohibiting the entities from engaging in securities trading until further notice, and directed the preservation of relevant records.
SEBI conducted an investigation to examine the high correlation between trading activities of certain entities (“Noticees”) and stock recommendations provided by guest experts on Zee Business during the period from 01-02-2022, to 31-12-2022. The investigation aimed to determine if there were violations of the SEBI Act, Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market Regulations, 2003 (PFUTP Regulations), and Research Analysts Regulations, 2014 (RA Regulations). An Investigation Authority was appointed under Section 11C of the SEBI Act to conduct further investigation into the matter. This included a search and seizure operation on the premises of suspect entities, during which electronic devices were seized, and statements were recorded. Following the search operation, various analyses were conducted, including data analysis from seized electronic devices, KYC details, bank account statements, Call Data Records (CDR), geographical locations, trading activities, recorded videos of Zee Business shows, account opening forms, and relevant material from the Ministry of Corporate Affairs (MCA) website.
The noticees were Profit Makers who were entities alleged to have made profits based on advance information of stock recommendations, Enablers, the entities allegedly aiding and assisting the profit makers by providing necessary support, such as trading accounts and credentials and guest Experts who appeared on Zee Business shows and provided stock recommendations. These experts allegedly provided non-public information to profit makers prior to broadcasting their recommendations. The investigation examined the role of Associates with the guest speakers. Further the role of parties involved in aiding and abetting the trading activities was also investigated.
The SEBI was pleased to look into the aspects of correlation between trading and recommendations, sharing of information in advance and manipulative trade practice. The evidence comprised of demonstrations of connections among various Noticees, instances of advance information sharing about scrip/contract recommendations by Guest Experts with Profit Makers before their appearances on Zee Business, instances of trades executed by Profit Makers based on this advance information, indications of increased trade volumes and favorable price movements aligning with recommendations, enabling Profit Makers to capitalize on this advance information for profit and instances of Profit Makers sharing their profits with Guest Experts.
On the aspect of correlation between trading and recommendations, the SEBI noted a noticeable correlation between the trading activities of Profit Makers and the stock recommendations provided by Guest Experts on Zee Business. Subsequently, it was revealed that the Guest Experts, both directly and indirectly, would share information in advance about the recommendations they intended to make on Zee Business. This advanced information enabled the entities to initiate positions in the recommended scrip/contract. Following the broadcast of these recommendations, there was a noticeable increase in trade volumes as well as a positive movement in prices aligned with the direction of the recommendations. Consequently, the entities would close their positions, often at prices more favorable than those at which the positions were initiated, thereby generating profits. The investigation revealed alleged associations (Noticees 6 to 10) aiding and abetting trading activities in connection with the recommendations.
On the aspect of advance information sharing, the Court further notd that the evidence pointed towards the sharing of advance information about stock recommendations by guest experts with select entities (Profit Makers) prior to their broadcast. The trading activities based on this advance information were observed, resulting in favorable price movements and increased trade volumes.
On the aspect of manipulative trading practices, the Court observed that there were notable instances were found where trading actions were initiated prior to recommendations being aired, followed by subsequent profit-taking after the broadcast. Such practices were deemed manipulative, exploiting the anticipated impact of recommendations on stock prices and trading volumes.
The Court prima facie held that the Noticees 1 to 5 (Profit Makers) have violated provisions of Sections 12A(a), 12A (b), 12A(c), and 12A(e) of SEBI Act, Regulations 3 (a), 3(b), 3(c), 3(d), 4(1) and 4(2)(d) of SEBI (PFUTP) Regulations, Noticees 6 to 10 (Enablers) have violated provisions of Sections 12A(a), 12A (b), 12A(c), and 12A(e) of SEBI Act, Regulations 3(a), 3(b), 3(c), 3(d) and 4(1) of SEBI (PFUTP) Regulations and Noticees Nos. 11 to 15 (Guest Experts) have violated provisions of sections 12A(a), 12A (b), 12A(c), and 12A(e) of SEBI Act, Regulations 3 (a), 3(b), 3(c), 3(d), 4(1) and 4(2)(o) of SEBI (PFUTP) Regulations.
The Court further restrained Noticees Nos 1 to 5 and 11 to 15 from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders and directed Noticee Nos. 11 to 15 preserve the records of their various social media accounts maintained by them, directly or indirectly, till further directions.
[In the matter of trading based on the stock recommendations given by Guest Experts appearing on Zee Business Channel, decided on 08-02-2024]
