How a Rs 5 note was instrumental in a front-running scheme worth Rs 1.3 lakh

How a Rs 5 note was instrumental in a front-running scheme worth Rs 1.3 lakh

A dealer and a few authorized representatives of three brokerages front-ran deals for a large customer, according to a Sebi inquiry.

The IP address that one of the players used to make the orders was another important piece of information that proved helpful to Sebi.

In a front-running scheme involving Rs 1.3 crore, dealers and authorized representatives of brokerage companies used a five rupee note as a key component.

The two masterminds of the scheme divided the proceeds using the bank note.

The Securities and Exchange Board of India (Sebi) seized illegal profits of over Rs 1.3 crore made by broker Ashok Maheshwari and his accomplices front-running transactions for a significant customer of the firm in an order dated April 26.

Among his collaborators were CHL Stock Concepts and Darshan Bakul Shah, who have authorizations from two other brokerages. The brokerages' names remained a secret.

What function did the five rupee note serve?

It served as a figurative ID.

Sebi's investigations revealed that Maheshwari would advise Shah of the significant client's upcoming transactions, which Shah would then use the accounts of his family members and colleagues to front run.

Shah would use a cash courier to deliver Maheshwari's portion of the earnings when it came time to divide them. Maheshwari gave the cash courier his identification by showing him the five rupee note.

According to Shah's statement to the regulator's representatives, Ashok Maheshwari sent a five rupee note from his mobile phone (number 99XXX097XX) on Telegram to identify himself as the recipient of payment via his employee Ganesh.

"I hand over cash to Ganesh and the above 5 Rupee Note image for Ashok Maheshwari's identification," he continued. When Ganesh compared the pictures with the serial number shown in the previous pictures, he gave Ashok Maheshwari the money.

Hawala operators have refined the art of utilizing bank notes as identification verification. Given that their unique ID is unaffected by the sender and destination, currency notes are the preferable option for these kinds of transactions.

Unfortunately for Shah, he hadn't erased the picture of the banknote from his phone, and Sebi officers discovered it and questioned him about it afterwards.

The IP address that Shah used to make the orders was another important piece of information that proved helpful to Sebi. The regulator found that it revealed the many accounts he was using to front run the deals.

His home address was associated with the IP address. But Shah, his family's HUF, and Benzer Department Stores, an unaffiliated business, were receiving orders from this location.

"In the present case, it has been revealed that the Noticee no. 2 was carrying out trades in the accounts of Noticee no. 5 based on its online footprint in the form of IP address," the Sebi decision said. Therefore, technology has aided in the investigation process, which would have been quite difficult without it to uncover the tightly-knit strategy of carrying out transactions in many accounts."