SEBI Imposes ₹4 Lakh Penalty On Pace Stock Broking For Compliance Lapses In Axis MF Front Running Probe

The Securities and Exchange Board of India (SEBI) has imposed a ₹4 lakh penalty on a stock broker for failing to furnish trader-wise mapped IP address details in the prescribed manner and for furnishing incorrect information during an investigation into the alleged front-running of trades of Axis Mutual Fund.

SEBI Adjudicating Officer (AO) Jai Sebastain passed the order.

The regulator initiated adjudication proceedings against Pace Stock, a registered stock broker, following an investigation into suspected front-running of trades of Axis Mutual Fund between April 1, 2020 and March 31, 2022.

During the investigation, SEBI alleged that the broker failed to maintain and furnish trader-wise IP address and order/trade connection logs in the prescribed manner, used the credentials of an individual, Kaleeswaran Pandian, to obtain trading terminal and user IDs despite his not being an approved dealer, and furnished incorrect information regarding the identity of the dealer operating a particular user ID, thereby allegedly misleading the investigation.

The broker denied the allegations, attributing the discrepancies to inadvertent clerical errors and technical limitations while arguing that it neither derived any unfair gain nor caused loss to any person.

Rejecting the defence, the AO held that the broker had failed to furnish trader-wise IP address details for numerous instances despite repeated requests during the investigation. It further rejected the broker's contention regarding technical constraints and observed,

“Here, | note that a bare assertion of technical difficulty cannot be accepted as a valid justification for non-compliance sans any corroborative document or evidence.”

The AO further found that the broker had obtained trading terminal IDs and user IDs in Kaleeswaran Pandian's name and repeatedly renewed or updated them over several years, rendering its explanation of a one-time clerical error untenable.

It found that the CTCL terminal and user IDs registered in Kaleeswaran Pandian's name were actually being operated by one Rajeev Ranjan.

The AO further held that the information furnished by the broker regarding dealer Rajeev Ranjan during the investigation was incorrect and that the broker had failed to properly maintain the information and user ID records. It held:

“It was the responsibility of Noticee to provide the correct information that was sought and was obligated to cooperate with the IA which it did not do so. In the light of the aforesaid, it is apparent that the failure on the part of Noticee to furnish correct information has to an extent hampered the instant investigation.”

Holding that the violations stood established, the AO imposed a penalty of ₹1 lakh under Section 15A(a), ₹1 lakh under Section 15A(b) and ₹2 lakh under Section 15HB of the SEBI Act, aggregating to ₹4 lakh.