Stock Market regulator SEBI has barred Pan Asia Advisors and Mr Arun Panchariya from being an intermediary in the securities market.
SEBI also barred 10 entities from buying and selling stocks and banned seven companies — Asahi Infrastructure & Projects, IKF Technologies., Avon Corporation, K Sera Sera, CAT Technologies, Maars Software International and Cals Refineries — from issuing equity shares or instruments convertible into equity shares or alter their capital structure till further directions.
SEBI directed NSDL and CDSL to freeze the beneficial owner accounts and stock exchanges have been advised to enable square off existing open positions in the F&O segment for the above mentioned persons and entities.
They have also been directed to ensure that said persons/entities do not take fresh positions or increase their open positions
SEBI action follows complaints from investors regarding the structuring of sale of shares by certain FII/sub-accounts in companies that had made substantial issue of GDRs, as compared to its existing pre-GDR capital.
Ex-parte order
In an ex-parte order on Wednesday, SEBI said that these entities had indulged in structured GDR transactions and manipulated the market.
SEBI said that the arranger (Pan Asia Advisors in this case) facilitated the issue of GDRs (Global Depository Receipts) to particular foreign entities who sold these GDRs to certain FII sub-accounts.
This was followed by substantial conversion of the GDRs into equity shares by these FIIs which were then sold to a set of counterparties on the domestic exchanges.
The counterparties, in turn, sold these shares to retail domestic investors.
SEBI said this eventually meant that the ultimate source of funds for a high proportion of the GDR issue was provided through investment done by the retail investor in India.
Alerts and findings
On receiving surveillance alerts on order book manipulation, deliberate attempts to trigger a large amount of stop loss orders and large scale off market transactions in the seven companies, SEBI found that large scale GDR conversions into equity and eventual sale were being done by FII sub accounts within a short period of issue of GDRs by the companies.
Analysis of counterparties showed that a few counterparties were repeatedly appearing among the top counterparties. In view of such large scale selling by the FIIs and its matching with these clients, SEBI carried out a detailed examination of these scrips.
The findings revealed prima facie evidence of a pre-arrangement between parties to transactions at various stages of this complex scheme. SEBI found prima facie evidence that Mr Arun Pancharia was the ‘common denominator' to every other party in this complex web, be it the GDR issuing company, GDR subscriber, FII sub-account, bank, lead manager and the related counterparties.
There are four beneficiaries of such a scheme, said the SEBI order. The first were the GDR issuing companies whose net worth surged; second was the lead manager which earned commissions for providing services; third were the sub-accounts that purchased GDRs at discounts in an illiquid foreign market and exited such investments in the domestic market; and finally the related counterparties who connived with the FII sub-accounts and made a market in the scrip in order to generate signals of volume and depth that attracts domestic investors.
SEBI has also forwarded a copy of the order to Enforcement Directorate for taking necessary action.