Investor fined $9.6 mn for manipulating RIL securities in UK

This is one of the biggest penalties imposed abroad for manipulation of foreign-listed securities of an Indian company. Besides, it is also the biggest ever fine imposed by the FSA on an individual for market abuse.

The wrongdoing was found to be committed by the investor alone and the company, India's most valued firm, whose securities were manipulated, itself has not been implicated in the case.

The British market watchdog Financial Services Authority (FSA) said in its order that it has fined Rameshkumar Goenka, an Indian businessman living in Dubai for past 12 years, USD 9,621,240 (about six million British pounds).

Goenka was found to be manipulating the securities of RIL by inflating the closing price of the company's GDRs (Global Depository Receipts), listed on the London Stock Exchange, on October 18, 2010.

The shares of RIL, the flagship company of the Indian business conglomerate led by India's richest person Mukesh Ambani, are primarily listed in India, but their GDRs are traded on the LSE also.

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.

Announcing the penalty order, FSA said that "in publishing its findings against Goenka, the FSA is not in any way criticising Reliance."

FSA said that Goenka was a "prominent" and sophisticated" investor with a substantial portfolio of investments and had failed in a similarly-planned exercise for a different structured product in April 2010.

The fine could have been much higher at over USD 12.4 million (about Rs 62 crore), but Goenka was granted a 30 per cent discount on his fine for settling the case at an early stage of the FSA's investigation.

FSA said that Goenka on October 18, 2010 placed orders and executed trades which artificially inflated the closing price of Reliance securities on the LSE.

Goenka had held an over-the-counter (OTC) structured product maturing on October 18, 2010, for which the pay-out depended on the closing price of Reliance securities that day.
Because of the inflated price, Goenka could avoid a loss of over USD 3 million on the previously purchased product.

As a result of his manipulation of Reliance closing price, the issuing bank of the structured product had to overpay him USD 3.1 million.

Dubai-based Goenka's fine of USD 9,621,240 comprises a penalty of USD 6,517,600 and a restitution element of USD 3,103,640, which will be reimbursed to the bank.

Commenting on the order, Tracey McDermott, acting director of enforcement and financial crime at FSA, said: "Goenka's structured product was an investment that would have made him a considerable profit had it been successful for him.

"When he saw that it was not going to produce the desired result Goenka manipulated the market to avoid a substantial loss," she added.

FSA said that Goenka had 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.