November 9, 2011 12:53 pm

FSA hands out its biggest market abuse fine

A Dubai-based investor has been fined $9.6m for manipulating the closing price of India’s Reliance Industries securities to avoid losses on a structured product.

In the UK’s largest fine ever handed out to an individual for market abuse, Rameshkumar Goenka will return $3.1m to the bank that was on the other side of his structured product and pay a further penalty of $6.5m, the Financial Services Authority said.

The case, based on Mr Goenka’s activities in October 2010, is one of the first under the tougher penalty policy adopted by the FSA last year and heralds much higher fines to come.

The FSA final notice said Mr Goenka bought nearly 800,000 of the Indian oil and gas group’s global depository receipts on the London Stock Exchange seconds before the closing bell, artificially driving up the price 1.7 per cent. That allowed him to avoid $3m in losses on an over-the-counter structured product linked to the final price of Reliance GDRs on that day.

The watchdog said audio tapes revealed Mr Goenka had planned a similar intervention in April 2010 involving another structured product and up to $66m worth of shares of Gazprom, the Russian energy group. But he ended up calling it off because Vladimir Putin, the Russian prime minister, announced a merger involving Gazprom that drove the share price down sharply on the maturity date.

“Goenka’s structured product was an investment that would have made him a considerable profit had it been successful for him. When he saw that it was not going to produce the desired result, Goenka manipulated the market to avoid a substantial loss,” Tracey McDermott, acting FSA enforcement director, said.

“Market confidence will suffer if participants cannot be satisfied that the price of quoted securities reflects the proper interplay of supply and demand,” she said.

Stephen Gentle, Mr Goenka’s lawyer, said his client had agreed to settle the case to “avoid long and disruptive litigation”. Mr Goenka also received a 30 per cent discount for early settlement.

“He does not accept that he has committed intentional market abuse. His view is that he was hedging a position on which he was running a significant risk and simply replicating what banks do,” Mr Gentle said.

Both structured products had face values of $10m, were purchased in 2007 and had maturity dates in 2010.

Reliance, which is primarily listed in India, was not implicated in the case.

Additional reporting by James Fontanella-Khan in Mumbai

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