How Sanjiv Bhasin's Front-Running Case Exposed the Cracks in SEBI’s Regulatory Safeguards

[Srishti is a student at NALSAR University of Law.]

On 17 June 2025, the Securities and Exchange Board of India (SEBI) issued an interim order against Sanjiv Bhasin and 11 others for their involvement in a front-running scam of INR 11.37 crore spanning over 4 years. SEBI’s investigation found that Bhasin manipulated stock prices by first buying shares, then promoting them on news channels and Telegram groups to inflate demand and finally selling them at higher prices for illegal profit. SEBI ordered the impounding of these gains and imposed an interim ban on all twelve individuals from accessing the securities market until further notice.

This article critically examines the Sanjiv Bhasin front-running case as a lens to explore the evolving nature of market manipulation in India’s securities landscape. First, the article uses the Bhasin case to explain front-running and its legal context in India. Second, it explains the reasons for rising front-running and retail investor vulnerability. Third, it highlights regulatory gaps in legal mechanism against front-running in India. Finally, it compares global practices and suggests reforms.

Understanding Front-Running in Contemporary Contexts

SEBI defines front running as “usage of non-public information to directly or indirectly, buy or sell securities or enter into options or futures contracts, in advance of a substantial order, on an impending transaction, in the same or related securities or futures or options contracts, in anticipation that when the information becomes public; the price of such securities or contracts may change”. Traditionally, it involved brokers exploiting confidential client orders for personal gain. However, in today’s media-driven markets, front-running has evolved into media-enabled front-running or "pump-and-dump” (emphasis supplied) schemes. In this case, Bhasin promoted certain stocks on news channels and Telegram after he and his associates had already bought them through proxy entities. Once prices rose due to public interest, they sold at a profit, leaving retail investors with inflated, falling stocks.

Indian Laws against Front-Running

Under Indian law, front-running falls squarely within the ambit of the Prohibition of Fraudulent and Unfair Trade Practices Regulations 2003 (PFUTP Regulations). Regulation 4(2)(q) prohibits trading based on non-public information about impending transactions. While the PFUTP Regulations do not explicitly mention front-running, this definition captures the essence of Bhasin’s conduct, where he acquired shares and subsequently promoted them through public channels to artificially inflate prices before selling.

Violations of this nature attract heavy penalties under the SEBI Act 1992 (SEBI Act). As per Section 15 HA of this Act, offenders face a minimum fine of INR 5 lakh, which can go up to INR 25 crore or 3 times the illicit profits, whichever is higher. In Bhasin’s case, SEBI impounded INR 11.37 crore, which reflects the disgorgement of unlawful gains. 

Moreover, Section 24 of the SEBI Act empowers SEBI to initiate criminal proceedings, allowing for both civil and criminal actions to be pursued concurrently. In Prakash Gupta v. SEBI, the Supreme Court stated that Section 24 can be used against “the most banal of offences, to the most egregious of market disruptions and frauds.” While applicable to front-running, this provision is limited to the most serious offences. In practice, SEBI relies mainly on civil measures, using criminal action only in exceptional cases.

Retail Vulnerability and Front-running Surge

India’s capital market has witnessed a dramatic increase in retail participation in recent years, marked by the opening of over 2.5 crore new demat accounts. Notably, a significant proportion of these accounts are operated by young, first-time investors who are from lower-income segments with limited access to market knowledge and patterns. This increase is matched by the opaque trading strategies deployed by big institutional players and manipulators. 

This is perfectly exemplified by the Sanjiv Bhasin example. Established players like him use informational asymmetry, access to privileged data and media visibility to artificially inflate stock prices, exiting when the prices peak, and leaving retail investors with depreciating stocks. 

The scale of the harm is not abstract. In the derivatives segment alone, SEBI’s annual data for Financial Year 2024 reveals that 91% of retail traders incurred net losses, amounting cumulatively to INR 1.8 million, while proprietary and foreign institutional algorithmic traders accrued combined profits of approximately INR 6,100 crore.

The Bhasin case is not an aberration because front-running incidents have increased across market segments. In April 2025, SEBI ordered against Madhav Stock Vision for INR 2.73 crore in unlawful gains, and in 2023, 5 LIC employees were penalized for a similar INR 2.44 crore scheme.

The monetary magnitude of such offences varies, but the underlying modus operandi and regulatory outcomes reveal an unsettling consistency.  

Enforcement Deficit in Indian Front-Running Laws

The persistence of such misconduct suggests that although existing mechanisms are procedurally sound, they are falling short in delivering deterrence and systemic reform. This might be because of many reasons, a few of which are listed below.

First, with an increase in the number of investors in the Indian market, SEBI is responsible for monitoring an extraordinary amount of data. This makes the identification of any suspicious trading patterns quite difficult. Even where safety mechanisms are triggered, establishing a prosecutable chain of evidence is very complicated. In cases like the Ketan Parekh Front-Running Scheme (2021–23), Ikab Securities Case (2022), SEBI struggled to trace trades involving encrypted channels, burner phones, and offshore accounts. Proving that these trades were based on non-public, price-sensitive information demands strong investigative capacity, technical expertise, and strong prosecutable evidence, all of which are difficult and resource-intensive to secure.

Secondly, SEBI’s enforcement toolkit relies predominantly on civil mechanisms like monetary penalties, disgorgement of unlawful gains, and temporary market bans. Criminal prosecution under Section 24 of the SEBI Act is legally available but operationally rare. This leads to a situation where wrongdoers may treat regulatory action as a cost of doing business, re-entering the market once the ban period lapses, thereby diluting any lasting deterrent effect.

Thirdly, a further structural limitation lies in institutional capacity. Unlike the US Securities and Exchange Commission (SEC), which maintains dedicated enforcement divisions with forensic and prosecutorial expertise, SEBI functions with a leaner setup. The absence of a centralized white-collar crime enforcement framework leads to investigations often being prolonged and overlapping with specialized agencies, frequently resulting in jurisdictional ambiguities and delayed inter-agency coordination.

Comparative Perspectives on Front-Running Regulation

While India’s regulatory framework formally prohibits front-running, a comparative perspective highlights the relatively muted enforcement landscape domestically. By contrast, jurisdictions such as the US adopt a more aggressive enforcement posture. A tripartite regulatory structure involving the SEC, Financial Industry Regulatory Authority and Commodities Future Trading Commission oversees front-running. The consequences are materially more stringent. In a recent enforcement action, Morgan Stanley was required to pay over USD 249 million in disgorgement, arising out of a block-trade front-running scheme. Notably, individuals in such cases face the prospect of criminal prosecution, custodial sentences, and permanent industry disqualification.

A similar orientation is observed in the UK and the EU, where front-running is treated as a subset of insider trading under Article 1.3 of the Market Abuse Regulation and the Financial Conduct Authority (FCA) Handbook. Enforcement is both preventive and punitive, from mandatory internal reporting to prison terms of up to ten years. Active involvement of criminal courts underscores the gravity of market integrity violations.

While SEBI has acknowledged regulatory gaps through proposed compliance protocols for mutual funds, its enforcement remains less assertive than global standards. Bridging this gap requires more criminal prosecutions and greater focus on individual accountability.

Conclusion and Reforms

Although India has a robust legal framework to penalize front-running, such incidents remain routine. This persistence stems not just from legislative shortfalls but also from technological, structural, and institutional enforcement deficits.

First, investigations in India are largely retrospective, resource-intensive, and reliant on tip-offs. At the same time, front-running methods have become increasingly sophisticated, involving high-speed execution, co-location, encrypted communication, and proxy accounts.

To counter this, SEBI must adopt a real-time, surveillance-first enforcement model by integrating its systems with broker and exchange data. This would allow automated detection of anomalous trading patterns. A useful benchmark is the SEC’s Consolidated Audit Trail, which captures all trades across broker-dealers in near real time. Similarly, the FCA deploys Surveillance, Monitoring, Analysis and Reporting Technology System, an Artificial Intelligence / Machine Learning based pattern recognition tool for cross-market surveillance.

Currently, SEBI relies on Integrated Market Surveillance System and Data Ware Housing and Business Intelligence System, which are limited by post-trade delays and fragmented databases. However, SEBI’s proposed Data Lake initiative offers a promising path forward. By centralizing trade, order, and communication data and applying AI/ML analytics, it can enable real-time, cross-venue surveillance. 

Second, SEBI’s current penalty regime relies mostly on civil fines, which often fall short of deterring large-scale or repeat front-running. In many cases, the penalties are too low compared to the illegal profits made. To strengthen deterrence, SEBI must actively use Section 24 of the SEBI Act to launch criminal proceedings in serious cases.

Third, the August 2024 directive requiring whistleblower systems in Assistant Management Companies is a step in the right direction but lacks the depth to truly deter front-running. Current compliance remains vague, with weak escalation, little accountability, and heavy use of informal channels.

Therefore, as India’s markets grow more complex and interconnected, the Bhasin case serves as a crucial reminder that robust laws must be matched by agile enforcement, technological foresight, and an unwavering commitment to investor protection.