Daredevil Agencies, which has been fined for dealing in illiquid options contracts to manipulate volumes in certain securities, also seems to have a daredevil leadership.

Its directors Barun Chatterjee and Debabrata Gayen are also directors of nine other companies, eight of which were investigated by the market regulator for the same offence — violating the Securities & Exchange Board of India  (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, by creating artificial volumes in certain securities, sometimes even up to 100 percent of the total market volume.

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They did this through reversal trades (buying and selling securities with the same counterparty) of illiquid options. They bought the options for a certain price from a counterparty, and then sold nearly the same (if not the same) quantity of options at a lower price to the same counterparty within a few minutes, even though there was no significant movement in the underlying stock to affect option premium (market price of the option). People do reversal trades for various reasons such as pumping-and-dumping of stocks, manipulating the price of a stock by buying options till the market-wide position limit (the maximum open futures & options contracts permitted for a stock) ban is triggered, and laundering money.

Of the eight firms investigated, six were fined Rs 50.6 lakh in total, because adjudication proceedings on the remaining two could not be continued since they had been dissolved on the same day.

The total fine of the companies would rise to Rs 52.6 lakh if we include the Rs 2 lakh fine imposed on one of the companies  for violating the Code of Conduct for Stock Brokers.

Moneycontrol has reached out to both the directors and the copy will be updated if and when they respond.

A curious twinning?

Both Bangamata Dealers Private Limited and Bangamata Vyapaar Pvt Ltd were struck off the list of companies by the Registrar of Companies, Kolkata (ROC), and dissolved as companies on February 3, 2022.

With both entities, SEBI had been satisfied that there were grounds for further enquiry into their affairs, and had appointed an officer for this. The orders regarding both entities were passed on March 24, 2023. But, after a notice was issued to the companies to show cause why an enquiry should not be held against them, it was revealed that the companies had been struck off the registry and dissolved.

In the order on Bangamata Dealers Private Limited, SEBI’s adjudicating officer wrote, “it  is  an  established  fact  that  when  a company’s name is struck off from the ROC list and the company is dissolved, it is a non-existing  company  and  the  adjudication  proceedings  against  the  non-existing company is thus nullity. In view of the foregoing, I am of the view that the instant adjudication proceedings against the noticee is liable to be abated without  going into the merits of the case. Should the noticee stand revived or restored at  any stage, a decision to initiate proceedings may be taken afresh.”

The order on Bangamata Vyapaar Pvt Ltd too expresses a similar line of thought.

Also read: MC Investigates: Operators use illiquid stock options to push F&O securities on to ban list, manipulate prices

Enabling fraud

One of the companies, Kesarisuta Vinimay Private Ltd, also a registered stock broker, was also found to have participated in and enabled  these reversal trades to manipulate volumes in the securities.

It was fined Rs 8 lakh, including Rs 2 lakh for violation of the Code of Conduct for Stock Brokers read with the Broker Regulations. The order stated, “the noticee did not exercise due care and diligence in the conduct of its business while dealing with its clients, which is in violation of Schedule II A (2) of the Code of Conduct for Stock Brokers read with Regulation 9 (f) of the Broker Regulations. Further, I hold that the noticee not only failed to identify such non-genuine trades, but also continued  to  enable its  clients  in  execution  of  fraudulent  transactions  (reversal trades) on the exchange in spite of being alerted by the BSE, which is in violation  of Section 12 A(a), (b), (c) of SEBI Act, 1992 read with Regulations 3(a), (b), (c), (d) and 4(1) of  PFUTP Regulations.”