In perhaps the first order of its kind, on January 13, 2021, SEBI passed an interim order restraining a CNBC Awaaz anchor, Mr. Hemant Ghai (Mr. Ghai), and his two family members from dealing in securities for fraudulently trading in the securities recommended by Mr. Ghai in his television show.
Mr. Ghai hosts a show called Stock 20-20 on CNBC Awaaz (Show) before market hours, which features recommendations on certain stocks to be bought and sold during the day. SEBI observed that Jaya Hemant Ghai and Shyam Mohini Ghai, wife and mother of Mr. Ghai respectively, have undertaken a large number of Buy-Today-Sell-Tomorrow (BTST) trades in synchronization with the recommendations made in the Show. It was observed that shares were bought on the day previous to the day when the recommendations were made on the Show, and sold immediately on the recommendation day when the price rose pursuant to the recommendation.
Based on preponderance of probability, SEBI observed that a buy recommendation given on the Show had a significant positive effect on the price and volume of the relevant scrip. Thus, SEBI stated that this is material information. Further, the information was made public only on the day of the recommendation; and hence, it was non-public information on the day the trades were executed. It was also, prima facie, observed that Mr. Ghai was in control of the trading accounts of his wife and mother. It is stated that executing the BTST trades while in possession of advance information regarding the recommendation is an unfair trade practice. It is also stated to be in violation of the ethical standards and fair and transparent principles of dealing in the securities market. The entire modus operandi described above is stated to be a fraud played on the market and investors/viewers of the Show.
SEBI observed that the scheme devised and employed by the above-mentioned entities was, prima facie, in violation of Section 12A(b), (e) of SEBI Act, 1992 and Regulation 3(c), (d) and Regulation 4(1) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations).
In light of the above observations, SEBI passed the interim order restraining Mr. Ghai, his wife and mother, from dealing in securities, and prohibited Mr. Ghai from giving stock recommendations or investment advice. Further, the bank accounts of all the three entities are frozen till they deposit an amount of Rs. 2.95 crore, being the alleged gains made from the fraudulent trades, into an escrow account.
While the interim order was rightly passed against Mr. Ghai and his family members, it is interesting to note how SEBI arrived at the conclusion that the abovementioned entities engaged in unfair trade practice and violated the provisions of the PFUTP Regulations. It is stated that Mr. Ghai himself traded in his wife and mother’s trading accounts while in possession of advance information. Considering that the advance information was nothing but the recommendation he himself was supposed to give the next day on his Show, it is peculiar that SEBI chose to issue the interim order on this basis. More so when the provisions of SEBI (Research Analysts) Regulations, 2014 (RA Regulations) are more directly applicable to this factual situation. Regulation 21 of the RA Regulations states that if a person makes recommendations concerning securities through public media, then the provisions of Regulation 16 and 17 shall apply to such person. Reading Regulation 16 together with Regulation 21 of the RA Regulations, we can conclude that a person giving recommendation or their associate (which by definition would include a relative), cannot trade in securities contrary to the given recommendation. The activities of Mr. Ghai, his wife and his mother would directly be in violation of these provisions.