Market Manipulation And Sebi’S Role
✅ What is Market Manipulation?
Market manipulation refers to intentional interference with the free and fair operation of the securities market. It involves practices that distort market prices or volumes to mislead investors and create artificial, false, or misleading appearances of trading activity.
✅ Common Forms of Market Manipulation
| Type | Description |
|---|---|
| Pump and Dump | Artificially inflating stock prices to sell at a profit before a crash. |
| Circular Trading | Buying and selling among connected parties to create false volume. |
| Price Rigging | Manipulating stock prices through false orders or collusion. |
| Insider Trading | Using unpublished price-sensitive information for personal gain. |
| Front Running | Broker placing orders for themselves before executing client orders. |
| Spoofing | Placing fake buy/sell orders to mislead the market. |
✅ Legal Framework Empowering SEBI
SEBI Act, 1992
Section 11: Protects investor interests.
Section 11B: Empowers SEBI to issue directions.
Section 15HA: Penalty for fraudulent and unfair trade practices (FUTP).
SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003
Defines market manipulation and empowers SEBI to take action.
Securities Contracts (Regulation) Act, 1956
Prohibits manipulative and unfair trade practices in securities.
⚖️ Key Case Laws on Market Manipulation & SEBI’s Role
⚖️ *1. Satyam Computer Services Ltd. Scam (2009)
Facts: Satyam’s promoters confessed to inflating profits and assets for years.
SEBI's Role:
Barred Ramalinga Raju (Chairman) and others from the securities market.
Imposed heavy penalties under FUTP Regulations.
Took action against auditors for complicity.
Outcome: Strengthened SEBI’s role in corporate governance and fraudulent reporting.
Significance: One of India’s largest corporate scams; led to stricter disclosure norms.
⚖️ *2. Shiv Om Investment & Consultancy Ltd. v. SEBI (2017)
Facts: Company involved in artificial volume creation and price manipulation through circular trading.
SEBI's Action:
Banned promoters and directors from accessing capital markets.
Imposed penalties under Sections 11B and 15HA of the SEBI Act.
Tribunal View: SAT upheld SEBI’s order, emphasizing intent and pattern of trades.
Significance: Reaffirmed SEBI’s power to take preventive action even without financial loss to investors.
⚖️ *3. Ketan Parekh Stock Market Scam (2001)
Facts: Stockbroker Ketan Parekh manipulated prices in collusion with promoters of companies.
SEBI's Role:
Investigated price rigging in 10 “K-10 stocks”.
Barred Ketan Parekh and associates from trading.
Froze bank and demat accounts.
Impact: First major post-Harshad Mehta era scam; resulted in stricter surveillance.
Significance: Triggered reforms in stock surveillance systems and margin trading norms.
⚖️ *4. Dangi Group Case (2011)
Facts: Several companies were found colluding with Dangi Group to manipulate stock prices and volumes.
SEBI's Role:
Conducted forensic investigation of stock transactions.
Banned 25 entities including promoters, traders, and companies.
Outcome: SEBI concluded that there was "concerted attempt to mislead investors".
Significance: Reinforced SEBI’s role in breaking collusive trading networks.
⚖️ *5. PACL Ltd. (Pearls) Case (2016)
Facts: PACL raised over ₹49,000 crores from investors under a real estate scheme but diverted funds.
SEBI's Role:
Declared the scheme as illegal collective investment scheme (CIS).
Ordered refund to investors.
Attached assets of PACL and its promoters.
Significance: Massive investor protection case; showed SEBI’s power over non-traditional investment frauds.
⚖️ *6. Sahara India Real Estate Corp. Ltd. v. SEBI (2012)
Facts: Sahara raised ₹24,000 crores through Optionally Fully Convertible Debentures (OFCDs) from the public without SEBI’s approval.
SEBI's Action:
Declared the issue illegal.
Directed Sahara to refund the money with interest.
Attached bank accounts and properties.
Outcome: Supreme Court upheld SEBI’s order and ruled against Sahara.
Significance: Landmark judgment establishing SEBI’s oversight even over hybrid instruments.
⚖️ *7. Price Manipulation in IPO Allotment Scam (2005)
Facts: Entities created thousands of fictitious demat accounts to corner shares in IPOs.
SEBI's Role:
Investigated stock brokers, depository participants, and companies.
Penalized NSDL and intermediaries.
Ordered disgorgement and debarment of individuals and firms.
Significance: Led to reforms in IPO allotment and KYC norms.
📌 SEBI’s Mechanisms to Combat Market Manipulation
| Tool/Mechanism | Function |
|---|---|
| Integrated Market Surveillance System (IMSS) | Real-time monitoring of trading patterns |
| FUTP Regulations | Legal framework to penalize unfair trade practices |
| Adjudication and Enforcement | Powers to issue directions, impose fines, and suspend licenses |
| Investor Protection Fund (IPF) | Compensation mechanism for affected retail investors |
| Coordination with other agencies | Works with ED, IT Dept., CBI for cross-investigation |
| Whistleblower mechanism | Receives alerts from informants under SEBI’s reward policy |
⚠️ Penalties Under SEBI Act (For Market Manipulation)
Section 15HA – Penalty up to ₹25 crores or three times the profit made.
Section 11B – SEBI can issue directions like restraining from market participation.
Section 12A – Prohibits manipulative and deceptive practices in securities market.
✅ Conclusion
SEBI’s primary mandate is to regulate, monitor, and protect the Indian securities market from manipulation and fraud.
Through enforcement actions in cases like Satyam, PACL, Ketan Parekh, Sahara, etc., SEBI has demonstrated its strong regulatory and investigative role.
Its powers under the SEBI Act, 1992 and FUTP Regulations, 2003 empower it to act swiftly and effectively against manipulation.
These cases also highlight the need for investor awareness, strong surveillance, and prompt judicial cooperation.
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