Sebi fines 6 entities in Deutsche Mutual Fund front-running case

Capital markets regulator Sebi has imposed penalties totalling Rs 15 lakh on six entities in a case pertaining to front-running the trades of Deutsche Mutual Fund, which is now known as DHFL Pramerica Mutual Fund.

Those penalised by Sebi are -- Kanchan Jena, Hemlata Dei Jena, Malati Lata Jena, Jayant Chhaparia, Abhishek Chhaparia and Progressive Share Brokers.

They have been directed to pay the fine within 45 days, according to two separate orders passed by Securities and Board of India (Sebi) on Friday.

Sebi found that the Fund Manager (FM) of Deutsche Mutual Fund (DMF) and his parents had employed a scheme to 'front run' the orders of the DMF and also were involved in every step that led to the fruition of the scheme, from the beginning till the withdrawal of the wrongful gain of the front running trades.

However, three sisters -- Kanchan Jena, Hemlata Dei Jena, Malati Lata Jena -- Jayant Chhaparia, Abhishek Chhaparia facilitated them in executing front-running trades during the investigation period from September 2014 and May 2015.

Front-running, which involves dealing in stocks based on insider knowledge of a future transaction, is considered one of the most serious offences by the Sebi.

Notwithstanding the finding that the FM and parents of FM were effectively controlling the trading and bank accounts of noticees 1-4 (Jena sisters and Jayant Chhaparia) the same will not absolve absolutely the noticees.

Sebi noted that the noticees cannot be absolved absolutely for their 'omission' and utter negligence to act in a prudent manner which enabled FM and parents of FM to use their trading and bank accounts as mule account sets, to execute those front running trades in a fraudulent manner during the investigation periods.

Further, Abhishek Chhaparia by giving misleading statements regarding trades done and by providing his mobile number for facilitating the opening of the trading account of his father Jayant Chhaparia for participation in the scheme to front run the trades of DMF shows that he was also an agreeable participant to the front running scheme, the regulator said.

Also, the watchdog noted that Progressive Share Brokers had not acted with due skill, care and diligence while opening of trading account of Malati Lata Jena, which enabled the manipulators to carry out the nefarious activities by masking their identity. It was noted that the subject account was used to front run the trades of Deutsche Mutual Fund.

Accordingly, the regulator levied a fine of Rs 5 lakh on Jena sisters as well as Rs 5 lakh on Chhaparias for violating PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norm and another Rs 5 lakh on Progressive Share Brokers for flouting stock brokers' rule.

In December 2021, the fund manager of Deutsche Mutual Fund and his parents settled the case with Sebi after paying nearly Rs 5 crore.

These orders came after the regulator had conducted an investigation to examine suspected front running of sell/buy trades of Deutsche Mutual Fund in the scrip of various companies by certain entities during September 2014 to May 2015.