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Rameshkumar Goenka, a Dubai-based investor, has been handed a $9.6-million fine by British regulator, the Financial Services Authority, for manipulating the closing price of Reliance Industries’ Global Depositary Receipts (GDRs) on the London Stock Exchange.
It’s the largest-ever fine for an individual imposed by the FSA and more than double the previous record of £2.8 million.
According to the FSA, on October 18 last year, Mr Goenka, who has lived in Dubai for 12 years, placed orders and made trades in the final seconds of the LSE’s closing auction of just under 800,000 Reliance Industries’ GDRs in order to avoid a loss of $3.1 million on an over-the-counter structured product he’d bought in 2007.
The total size of the orders placed were 280 per cent of the then average daily volume of trading in Reliance GDRs. “The timing of the substantial orders was intended to ensure that market participants had insufficient time to respond before the closing price was determined.”
In its final notice to Mr Goenka sent in October, the FSA noted several phone calls he had with a London-based broker, which revealed he had similar plans for a GDR of Russian energy major Gazprom in April 2010 to avoid a loss on another structured product, but had abandoned his plans on the day when the Russian Prime Minister, Mr Vladimir Putin, announced the merger of Gazprom with a Ukrainian firm.
“Goenka's structured product was an investment that would have made him a considerable profit had it been successful for him,” said Mr Tracey McDermott, acting director of enforcement and financial crime at the FSA.
“When he saw that it was not going to produce the desired result, Goenka manipulated the market to avoid a substantial loss.”
As a result of the closing price, Mr Goenka was paid $10 million — $3.1 million above what he would have made had he not got the required price.
His fine is made up of a $6.5-million penalty and the return of $3.1 million to the bank acting as the counterparty in the structured product. He received a 30 per cent discount on his fine for settling at an early stage in the FSA’s investigation.
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