Money & Banking

PMO asks SEBI for details of probe against Choksi

Mumbai | Updated on March 04, 2018 Published on March 04, 2018

For probe of link to stock market trades

The Prime Minister’s Office (PMO) has sought a response from stock market regulator SEBI about its investigation into the dealings of Mehul Choksi in the light of the jeweller-businessman’s involvement in the ₹12,700-crore PNB loan scam.

In 2017, the then SEBI whole-time member S Raman had ordered a probe into Choksi’s Gitanjali group, in a case related to allegations of unfair trade practices in the stock market.

The PNB scam had not come to light when Raman issued the order; government sources told BusinessLine that it is now being examined if there could be a link between the two cases.

“It is now believed that part of the money from defrauding banks could have come to the stock markets via exchange trading,” highly-placed government sources said.

Choksi and entities close to him were under SEBI’s scanner since 2013, when the National Stock Exchange banned 26 unique client codes from dealing in the stock market. The UCCs were disabled as the exchange and its clearing corporation were staring at a default of around ₹100 crore from entities linked to Choksi and a few stock brokers known to him. Choksi had pledged part of his holding in Gitanjali with the brokers, who used the shares as margin to avail a trading limit.

A primary probe showed that some foreign entities had lent money on the exchange platform to domestic ones linked to Choksi and his brokers. The modus operandi was to buy long-dated illiquid Nifty options from a few sellers. This way, the entity lending money would pay a high price for long-dated options, and money would be transferred legitimately to India without tax hassles or suspicion. Gitanjali shares were collateral in the game.

The problem began when Gitanjali’s shares crashed 90 per cent — from ₹600 in May 2013 to ₹65 in August. Options trading came to a halt, bringing Choksi and associates under the scanner.

In a rare order issued on March 10, 2017, Raman directed his colleges to conduct an investigation “with all powers entrusted with the regulator into trading of Gitanjali Gems and dealings of Choksi group and promoter entities of Gitanjali to unearth entire truth.”

Raman’s order, which he said was based on a market alert and prima facie examination, was issued under Sections 11 and 11B of the SEBI Act, which deal with Prohibition Of Fraudulent And Unfair Trade Practices in the stock market.

The PMO had also forwarded complaints to SEBI in 2015 and 2016 about Choksi and the Gitanjali group.

“It is not clear what action SEBI took in this case even when the regulator was alerted by its own senior official,” government sources told BusinessLine.

In response to an email query, SEBI said the circular banning the 26 UCCS and Raman’s order were in the public domain. But it did not respond to the query about the PMO’s probe.

A source close to SEBI said the regulator is investigating the case highlighted by Raman and there does not seem to any prima facie evidence of linkage between Choksi’s involvement in the PNB scam and the allegations of unfair trade practice in the stock market.

Published on March 04, 2018
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