Pyramid scamster flouts ban, sells Kotecha stocks

The perpetrators of the Pyramid Saimira scam continue to demonstrate their utter disregard for the law of the land.

In a daring act last week, a banned entity, Banty Dinesh Shah, the proprietor of Balaji Corporation (also banned), managed to hoodwink the system and offload his portfolio worth Rs 11 lakh. With Shah slipping through, the Securities and Exchange Board of India (Sebi) has now banned the brokerage Anugrah Stock & Broking Private Ltd, which executed the trade overshooting the ban.

The regulator has appointed Suresh B Menon, chief general manager, to look into the adequacy of the risk management system of the broker as well as the possibility that they worked together with Banty Dinesh Shah to violate the ban.

On May 21, Shah sold 13,500 shares of RTS Power Co and 1,000 shares of Usher
Agro in his demat account at Anugrah, netting him Rs 11,27,100.

Both these stocks were among the portfolio of Nirmal Kotecha, the mastermind behind the Pyramid Saimira scam, which included faking a Sebi order.

Shah and Balaji Corp were banned from dealing in shares for their active involvement in helping Kotecha defraud the market.

In the course of investigations, Sebi also unearthed a number of other violations.

The order banning Shah from the markets had been issued by Sebi on April 23. His account should have been closed on April 24. However, the broker had not closed it for over a fortnight. It was only after the receipt of a letter from the Bombay Stock Exchange on May 11 that the account was finally closed. But even this did not have any effect, as the client easily circumvented it when he wanted to (after the market bounce post elections).

The broker was also found guilty of violating the Know Your Client norms in case of Shah. An electricity bill submitted as proof of residence did not belong to him. Also, his office details and address have not been properly recorded. The name of the establishment has been filled as 'Diamond Broker' and his office address as just 'Opera House'.

"This defeats the very purpose of Know Your Client policy of ensuring that only legitimate and bona fide clients are accepted. Thus, the stock broker has not ensured that details in the Client Registration Application in respect of Mr Shah are adequate for a complete identification of the said client," Sebi complained.

The broker argued that the dealer who executed the trade on Shah's instructions submitted to Sebi that he was unaware of the order banning the client. The dealer stated that he was under the impression that the account could be closed due to a technical problem or on account of there being a debit balance in the account.

Shah had requested that the account be opened for the transaction as it would not add in any way to the broker's liability.

via DNA