LIC front-running case: Sebi bans three individuals, two entities from stock market

Market regulator Sebi has banned three individuals, an Life Insurance Corporation (LIC) employee Yogesh Garg and his relatives from buying, selling  or dealing in securities either directly or indirectly until further order. The case pertains to LIC front-running, where the five entities confiscated illegal gains of Rs 2.44 crore, front-running the trades of the insurer.

The list includes Yogesh Garg, his mother Sarita Garg, his mother-in-law Kamlesh Agarwal, Ved Prakash HUF and Sarita Garg HUF. HUF stands for Hindu undivided family.

Sebi order

The Sebi order states that the five individuals and entities must square off open positions in any exchange traded derivative contracts within 3 months from the date of the order or at the expiry of such contracts, whichever is earlier.

"The said entities are permitted to settle the  pay-in  and  pay-out  obligations  in  respect  of  transactions,  if  any,  which have taken place before the close of trading on the date of this order," Sebi said in its order.

Case history

Yogesh  Garg, son  of  Ved  Prakash Garg, was appointed in LIC in 2011 as an Assistant Administrative Officer(AAO). He thereafter worked  as  an  AAO  in  Kolkata,  Rohtak  and  Delhi  offices of  LIC. He also worked as  an  Administrative  Officer  (AO) in  the  investment  department  of  LIC in Mumbai from May 2019  to  April  2022. The  investment  department  of  LIC  is considered as a sensitive department.

Sebi said as a dealer in LIC, Garg had knowledge of confidential, non-public information regarding the size and timing of impending buy/sell orders of big client LIC, which could impact the price of the underlying scrip, during the examination period

Sebi advice to LIC

Sebi has advised LIC to review its extant processes and take all necessary additional measures as may be necessary to prevent, detect, and remediate any fraudulent,  manipulative  or  unfair  trade  practices by  its  employees in relation to its investment activities.

Front-running activity

For a trading activity to be consider as front-running two important factors need to be determined.

The first is there should be an information which is not publicly available regarding substantial impending order of big client in a security and the alleged front runners place orders in security (directly or indirectly) while in possession of the aforesaid non-public information in advance of large order to be placed by the big client.

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