Yet another case of wealth managers of UBS, the Swiss banking major, enabling a wealthy Indian client to invest in Indian equities violating domestic and Indian securities market regulations has come to light.
Mr Jaspreet Ahuja, a former senior client adviser at UBS' wealth management division in London, has been fined £150,000 and handed out a lifetime ban by the UK's Financial Services Authority (FSA) for breaching its code. The case relates to a tribunal hearing currently going on in London of Mr Sachin Karpe, who ran UBS' Asia II Desk, and who is accused, among other things, of directing the implementation of a foreign institutional investor vehicle to allow Mr Anil Ambani to invest in Indian stocks in breach of foreign institutional investor (FII) regulations. Mr Ambani is not mentioned by name in the final notice to Mr Ahuja published on Friday.
“Mr Ahuja utilised a pre-existing investment structure (that enjoyed regulatory clearances in both the UK and India) to enable an Indian resident customer, via an investment fund incorporated in Mauritius, to breach Indian laws in clear contravention of UBS guidelines. Ultimately, the customer invested over $250 million in the Fund,” the FSA said in the notice. “The customer in question consisted of a large group of Indian companies headed by a wealthy Indian individual,” it said referring to the individual as Customer A Chairman and the companies as Customer A.
Modus operandi
Mr Ahuja first set up a fund in 2006 for another of the bank's customers using a fund manager based in France, establishing it as what is known as a ‘protected cell company' that allows one to invest in a particular cell, ring-fencing those assets and liabilities from the rest of the company.
“In doing so, Mr Ahuja's intention was to assist Customer A in breaching Indian law,” said the FSA.
In August 2006, Mr Ahuja arranged for the fund manager to create a new cell, which the notice refers to as Cell X, in the fund for investment by Customer A who wanted to invest in an Indian company within its own group. “In a bid to assist Customer A in breaching the regulations, Mr Ahuja utilised an indirect investment route for Customer A into India whereby three Indian companies in Customer A's group invested over $250 million in Cell X, which in turn invested in Indian securities through FII vehicles. The Customer A investors were the beneficial owners of Cell X,” said the FSA.
Mr Ahuja made it appear that it was the fund manager, rather than Customer A, that was directing the investments. “In accordance with those instructions Cell X invested in Indian-listed equities and derivatives of a fourth Indian company in Customer A's group of companies, which is listed on the Indian stock exchange.”
By October 31, 2007, Cell X held $300 million worth of global depositary receipts in the fourth company.
Mr Ahuja said he accepted the FSA's decision. “The culture at the bank encouraged its wealth managers to take steps to maximise profits for its clients. I recognise that this culture affected my better judgment for a short period and overrode my responsibility to raise concerns.”
UBS was fined £8 million in 2009 for failing to conduct business with due skill, care and diligence.