Question

List three specific acts that constitute 'fraud' under SEBI Regulations, 2003.

Hint:

Under SEBI PFUTP rules, an act can be classified as fraudulent even if the offender did not achieve any direct financial gain. The mere act of distorting price discovery or misleading other investors is sufficient to establish a violation.

Answer 1

Step 1: Regulatory Context (SEBI PFUTP Regulations, 2003):
The Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, outlines the legal definitions and boundaries of market manipulation, fraud, and deceptive trade practices to protect investors and maintain market integrity.

Step 2: Three Prohibited Acts Defining Fraud:
Under Regulation 3 and 4 of these rules, the following three specific acts are classified as illegal and fraudulent:
• Creating a False or Misleading Appearance of Trading (Wash Sales & Circular Trading): Knowingly participating in transactions that do not result in a transfer of beneficial ownership (e.g., wash sales or matched trades between colluding accounts). This practice artificial inflates trading volumes and creates a false appearance of liquidity.
• Misrepresentation and Concealment of Material Facts: Making false statements, omitting material facts, or publishing misleading accounting adjustments. This includes siphoning off or diverting assets from a listed company to artificially manipulate its stock price.
• Disseminating False Price-Sensitive Information: Disseminating false or unverified market advice or tips through digital or print media (such as online blogs, messaging apps, or news channels) to induce other investors to buy or sell a security, allowing the manipulator to profit from the resulting price movement (Pump and Dump).