U.K. Regulator Hands Dubai-Based Investor Goenka Record $9.6 Million Fine
By Lindsay Fortado – Nov 9, 2011 8:23 AM ET
The U.K.’s finance regulator fined Dubai-based investor Rameshkumar Goenka $9.6 million for market abuse, its largest-ever fine against an individual.
Goenka, 66, manipulated the price of Reliance Industries Ltd. (RIL) securities on the London Stock Exchange by executing a high volume of orders in the final seconds of trading to inflate the payout on a structured product tied to the closing price, the U.K. Financial Services Authority said in a statement today.
“The impact of such behavior goes far beyond one counterparty,” said Tracey McDermott, the acting director of enforcement for the FSA. “Market confidence will suffer if participants cannot be satisfied that the price of quoted securities reflects the proper interplay of supply and demand.”
The fine includes a penalty of around $6.5 million and restitution to reimburse the bank $3.1 million, which overpaid him as a result on the structured product. Goenka received a 30 percent discount for settling the case, the FSA said. The regulator’s previous highest fine was against Simon Eagle, the former head of Fundamental-E Investments Plc and brokerage SP Bell Ltd., who was fined 2.8 million pounds ($4.5 million) last year over a share-ramping scheme.
Goenka’s lawyer, Stephen Gentle, said he was “pleased that the case has been settled quickly, so that he can avoid lengthy and disruptive proceedings.”
Goenka “doesn’t accept that he’s committed intentional market abuse,” Gentle said. “He was hedging a position on which he was running a significant risk. Obviously hedging activity is not unlawful, and in his view, he was simply doing what banks do every day of the week.”
Triple the Record
The fine is triple the previous record against an individual, said Harvey Knight, a lawyer at Withers LLP who is not involved in the case.
“In the wake of the financial crisis, the FSA has increasingly directed its attention against individuals rather than institutions,” Knight said. “This is a real statement of intent by the FSA.”
The fine levied against Goenka was high because of his “extensive experience as an investor,” that his action was pre-planned and intentional, and because he intended to take the same action in relation to another structured product, the FSA said.
Goenka, an Indian national who has lived in Dubai for the past 12 years, had bought two structured products in 2007 for $10 million each. Both related to a basket of global depository receipts, one representing shares in the Russian companies Gazprom OAO, Lukoil OAO and Surgutneftegaz Oil Co., and the other to the Indian companies Reliance, ICICI Bank Ltd. and HDFC Bank Ltd., according to the regulator.
The final payout depended on the closing price of the worst-performing of the three different GDRs on their maturity date. Reliance is India’s biggest company by market value and led by India’s richest man, Mukesh Ambani.
Goenka had planned to manipulate the price of Gazprom securities on the LSE to affect the payout on the Russian companies-linked structured product, which matured in April last year, the FSA said. The plan was scuttled when Russian President Vladimir Putin announced a merger between Gazprom and the gas company NAK Naftogaz Ukrainy, causing the price of the securities to fall too far to be manipulated, the agency said.
“Mr. Goenka’s behavior in relation to Gazprom is further evidence that the Reliance market manipulation was deliberate and carefully planned,” the FSA said.
Goenka isn’t regulated by the FSA, which approves people who work in the finance industry in the U.K., Gentle said.
“He relies on other market professionals, and he wasn’t warned by anyone else that what he was doing might be called into question by the regulator,” he said.
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