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Cairn India, the leading oil and gas player that was merged with Vedanta Ltd, has been found guilty of stock market fraud by market regulator SEBI.
The Securities and Exchange Board of India’s investigations found that Cairn misled public shareholders with its share buyback announcement in 2014 that was actually designed to induce the public to trade in the shares of Cairn. SEBI has imposed a fine of ₹5.25 crore on Cairn.
Further, SEBI says that P Elango, the then CEO and Director of Cairn, along with other company directors Aman Mehta and Neerja Sharma facilitated the company in making the said misleading announcement. All the directors have been fined ₹15 lakh each.
No intent to buy back
SEBI says that Cairn and its directors made the public announcement of buyback without any intent to fulfil it and hence acted fraudulently and thereby violated various provisions SEBI’s Prevention of Fraudulent and Unfair Trading Practices (PFUTP) rule and Buyback Regulations.
SEBI said that its detailed analysis of sell orders placed at National Stock Exchange (NSE) and BSE during the buyback period revealed that the company did not place any buy orders on the stock exchanges when the price was favourable for buyback but only on those days when it was not.
“Thus, Cairn had failed to achieve even the minimum buyback size as it could not buyback even half the number of shares announced by it, despite available of sufficient sell orders on NSE, when the market price was lesser than the maximum buyback price,” the SEBI order said
‘Designed to cheat’
SEBI has reasoned that an announcement of buyback is generally perceived by investors as a positive announcement indicating a favourable position of the company thereby inducing investors to buy or sell securities at increased price levels.
“The public announcement and subsequent actions of Cairn show that the announcement of buyback by Cairn was a misleading announcement designed to influence the decision of the investors and induce them to trade in the shares of Cairn which is reflected in the increased trading volume after the buyback announcement as brought out in price volume analysis,” SEBI said.
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