The Financial Services Authority has slapped a Dubai-based private investor a record $9.6 million – the largest fine ever for an individual – for manipulating the price of a Indian firm traded on the London Stock Exchange.
In a statement issued on Wednesday, the U.K's securities watchdog says that Rameshkumar Goenka, an Indian national who lives in Dubai, tried to manipulate the price of Reliance Industries global depositary receipts on the London Stock Exchange. A full copy of the FSA’s verdict can be found on www.fsa.gov.uk.
Goenka had purchased two structured products in 2007 for $10 million each. Both related to a basket of global depositary receipts. One represented shares in Russian companies and the other represented shares in Indian companies. The payout of the structured product which matured on October 18 depended on the closing price of Reliance securities that day.
Goenka, the FSA says, carefully timed orders to be executed in the final seconds of the LSE's closing auction to push up the price of the Reliance global depositary receipts. By increasing the closing price Goenka could avoid a loss of $3.103, 640 under the terms of the structured product. The bank, which was the counterparty to the structured product, overpaid Goenka $3,103,640 as a result of his manipulation of the Reliance closing price.
“The timing of the substantial orders was intended to ensure that market participants had insufficient time to respond before the closing price was determined,” says the FSA.
The $9.6 million fine consists of a $6.5 million penalty and about $3.1 million in restitution to the counterparty bank involved.
“The impact of such behavior goes far beyond one counterparty," says Tracey McDermott, the FSA's acting director of enforcement and financial crime. "Market confidence will suffer if participants cannot be satisfied that the price of quoted securities reflects the proper interplay of supply and demand."
As evidence of Goenka’s ill-intent, the FSA cites another case in which Goenka tried to manipulate the price of GDRs. That occurred last year when he tried to manipulate the price of GDRs in Russian company Gazprom. He was unsuccessful, says the FSA, when Russian President Vladimir Putin announced that Gazprom would merge with gas company NAK Naftogaz Ukrainy.
“Mr Goenka’s behavior in relation to Gazprom is further evidence that the Reliance market manipulation was deliberate and carefully planned,” the FSA says.
-- This article first appeared on Securities Technology Monitor.