London: British regulator FCA on Thursday fined an India-origin broker and two others in a case of financial market manipulation here by an Indian businessman in securities of Reliance Industries Ltd (RIL).
While a 6 million pound (Rs 56 crore) fine has already been imposed on the Indian businessman, Rameshkumar Goenka, the Financial Conduct Authority (FCA) took action against three more persons on Thursday in the same case by imposing total fines of about Rs 2 crore on them.
Goenka, a Dubai-based private equity investor, was found guilty of manipulating the UK-listed securities of Indian energy major RIL, as also those of Russian gas conglomerate Gazprom in October 2010. The fine on Goenka is so far the largest by the UK market watchdog for an individual. The manipulation happened in the 'Global Depository Receipts' of RIL and Gazprom.
The regulator clarified however that "the FCA is not in any way criticising Reliance or Gazprom" through its actions. Moving ahead in the case, the FCA said it has imposed a fine of 70,258 pounds on David Davis, senior partner and compliance officer of Paul E Schweder Miller & Co, while a fine of 45,673 pounds has been levied on Vandana Parikh, a broker at the same firm.
The two have been fined "for failing to act with due skill, care and diligence in the period leading up to the illegal manipulation of the closing price of securities traded on London Stock Exchange by Rameshkumar Goenka," FCA said. Besides, FCA has also decided to fine one Tariq Carrimjee 89,004 pounds and ban him from performing any role in regulated financial services "for recklessly assisting Goenka in his plan to manipulate Gazprom and Reliance securities in 2010," the regulator said.
Together, the three persons have been fined 204,935 pounds (about Rs 2 crore). The FCA said that Carrimjee introduced Goenka to a firm of brokers for the specific purpose of trading in the LSE closing auctions and then he participated in discussions about trading and assisted with arrangements for the trading.
"The FCA further considers that Carrimjee did so despite suspecting that Goenka held structured products related to the trading and despite suspecting that the objective of Goenka's plan was to secure the price of Gazprom and Reliance securities at a false or artificial level," it added.
With regard to the Indian-origin broker, FCA said Goenka was introduced to Parikh in April 2010 to execute trades in Gazprom and Reliance securities in LSE closing auctions. "A series of conference calls took place during which Goenka asked whether the closing price of Gazprom Global Depository Receipts (GDRs) could be raised by placing strategic orders. Parikh explained the impact that the size and timing of various orders might have on the closing price," it added.
The fines amounting to about Rs 58 crore imposed against Goenka and three others would be among the biggest penalties imposed abroad for manipulation of foreign-listed securities of an Indian company. GDRs are like certificates of shares of a foreign company that can be issued and traded on international exchanges outside the company's home country.
Goenka was found to have an extensive experience as an investor and his misconduct involved considerable pre-planning and the manipulative trading necessitated very substantial financial outlay and involved others. FCA said: "Parikh failed to act with due skill, care and diligence by explaining the process of manipulation to Goenka without recognising the risk that this posed and without proper challenge or enquiry as to his intentions.
"Further, although Parikh speculated that Goenka had a related structured product she did not discuss this possibility with her compliance officer." According to FCA, Goenka managed to avoid a loss of USD 3.1 million on a structured product by illegally manipulating the price of RIL securities.
Although Parikh suspected the manipulation being done by Goenka, she "did not know that Goenka had an underlying structured product". FCA said: "Parikh informed Davis that she had concerns about the proposed Reliance trading with the result that Davis became involved and monitored the trading.
"Although Davis was not aware of Goenka's desire to manipulate the price nor that he in fact held a linked structured product, he was aware of sufficient information to constitute clear warning signals and failed to take preventative steps before authorising the trades."
Davis did not report the trading as suspicious, the regulator said, while concluding that he also failed to act with due skill, care and diligence by failing to challenge the instructions for Reliance and by failing to refuse to accept the orders to trade. Davis held senior management positions at Schweder Miller and was responsible for compliance oversight.
The FCA has withdrawn his Significant Influence Functions (SIF) and prohibited him from holding those functions in future. FCA's Director of Enforcement and Financial Crime, Tracey McDermott, said that the collective failure of Parikh and Davis to recognise the warning signs and react accordingly meant they unwittingly enabled his manipulation to take place. "All approved persons have a duty to help the FCA in its fight against market abuse, and must be vigilant in spotting, challenging and reporting market abuse. That did not happen here. Instead, Goenka's manipulative strategy was allowed to proceed unchallenged," McDermott added.
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