suspected entities

Mehul Choksi was using front entities to manipulate the company’s shares, which resulted in him getting barred from dealing in the market. The regulator alleged the entities taking positions, both in cash and derivatives segments, in the scrip of Gitanjali Gems, acted as fronts on Choksi’s behalf

The Securities and Exchange Board of India (SEBI) has banned businessman Mehul Choksi, from the securities market for a period of 10 years, imposing a penalty of Rs 5 crore. Choksi was using front entities to manipulate the company’s shares, which resulted in him getting barred from dealing in the market. He is former chairman and managing director of Gitanjali Gems (GGL).

Earlier, during the period from 18 July 2011 to 25 January 2012, SEBI had conducted an investigation into trading activities of certain entities in the shares of Gitanjali Gems. The investigation revealed that in total 21 suspected entities were connected to each other through common telephone numbers, common addresses, common e-mail IDs and transfer of funds. 

The regulator alleged the entities taking positions, both in cash and derivatives segments, in the scrip of Gitanjali Gems, acted as fronts on Choksi’s behalf. It further added that such front entities were controlled and managed by a former employee of the company along with few family members. 

After analysing the bank statements of Gitanjali Gems and suspected entities, the company was found transferring and receiving funds from all such suspected entities through layering. Either to meet the margin obligations toward brokers, these amounts were utilised or that they belonged to pay-outs received from exchanges and were transferred back to the company, according to SEBI.

The regulator said that Mehul Choksi’ bank account with ICICI Bank reflected that there were regular transactions of huge amounts to and from the GGL’s bank account. Hence considering the allegations, it was discovered that Mehul Choksi was authorising the transactions made from the account of Gitanjali Gems, which involved movements of funds through layering to meet margin obligations of the front entities toward the brokers.