In a decisive crackdown on securities fraud, the Securities and Exchange Board of India (Sebi) has barred two individuals—Shivprasad Pattiya and Alkesh Narware—from participating in capital markets for three years. The regulatory action follows an elaborate investigation revealing that the duo orchestrated a fraudulent scheme involving illiquid 'Out of the Money' (OTM) stock options to siphon investor funds. Sebi has also ordered the duo to repay illegal gains worth Rs 4.83 crore, along with interest, and levied monetary penalties of Rs 25 lakh each. The misconduct was uncovered following investor complaints and unusual trading alerts from exchanges.
Fraudulent Manipulation Through OTM Stock Options
The scheme, according to Sebi’s findings, was meticulously designed to exploit retail investors under the guise of algorithm-based trading. Pattiya and Narware, functioning as the primary operators, used a network of front entities to open and operate trading and bank accounts. These accounts were used to execute unauthorized trades, primarily in illiquid OTM stock options, which are derivatives that hold value only under extreme market conditions—thus, seldom attract genuine interest or trading volumes.
The manipulation surfaced when multiple trades in these options showed abnormal price fluctuations, prompting Sebi and the National Stock Exchange (NSE) to initiate an investigation.
Misuse of Investor Credentials and False Promises
A key aspect of the fraud involved collecting trading credentials from unsuspecting investors who were enticed through WhatsApp groups offering guaranteed returns from algorithmic trading strategies. Once access was granted, the operator group executed trades to benefit the accounts under their control while exposing the investors to financial losses.
Sebi's investigation concluded that the entire trading activity—both from complainants' accounts and front entities—was centrally directed and controlled by Pattiya and Narware. The regulator described their operations as a "manipulative and deceptive device" to defraud, in violation of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations.
Regulatory Penalties and Financial Repercussions
In its final order, Sebi directed the two perpetrators to disgorge unlawful gains of Rs 4.83 crore, with an annual interest of 12 percent from February 2022, payable jointly and severally. Additionally, a penalty of Rs 25 lakh was imposed on each of them, to be paid within 45 days of the order.
The quasi-judicial order was issued by N. Murugan, a Sebi-appointed adjudicating officer, who emphasized that the individuals were not just complicit but were the “controlling minds and beneficiaries” of the fraudulent scheme.
A Wake-Up Call for Retail Investors and Platforms
This case underscores the urgent need for retail investors to exercise caution when participating in unregulated digital trading communities. The exploitation of algo trading jargon and social media platforms to lure novice investors is a growing concern in the Indian capital markets, and Sebi’s enforcement actions highlight the regulator’s commitment to protecting market integrity.
Moreover, the incident reiterates the importance of digital security and regulatory literacy, particularly in a rapidly evolving fintech ecosystem where unauthorized trading practices can cause significant financial harm.
Conclusion
Sebi’s strong stance against market manipulation serves as a reminder that regulatory oversight is not only reactive but increasingly proactive, relying on sophisticated surveillance tools and whistleblower inputs. While market accessibility continues to expand, investor awareness and vigilance remain the first line of defense against such exploitative schemes.
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