8:45 AM
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The Securities and Exchange Board of India (Sebi) has
barred seven companies from issuing shares or convertibles alleging
manipulation in their stocks using global depository receipts (GDRs) which are
listed abroad. Sebi also prohibited 10 entities from trading in Indian stocks, accusing them of colluding to rig prices and create artificial volumes in these stocks
Sebi said the companies including IKF Technologies, Avon
Corporation, Cat Technologies, Asahi Infrastructure, Maars Software, Cals
Refineries and K Sera Sera issued GDRs to these entities, which converted them
into shares almost immediately to sell them in the Indian markets.
The entities, including a foreign institutional investor and some sub accounts, sold the shares repeatedly to select counterparties to generate liquidity and attract retail investors, the regulator said in a 44-page order on Wednesday.
“Around 33-75% of the shares sold by these FIIs in various scrips were bought by these recurring clients,” the Sebi order, signed by whole-time member Prashant Saran, said. The investigation covered 344 trading days starting from January 1, 2009 to May 31, 2010.
The regulator said a few of these companies issued GDRs at a discount to the prevalent market price, resulting in a loss to the retail investors. “The liquidity in the scrip is not sufficient for sale of large quantity of shares without registering a steep price fall,” the order said. Sebi said the beneficiaries of this arrangement were the GDR-issuing companies, which ended up with a surge in net worth, the lead manager of the issues as they earned commissions for providing services, and the sub-accounts that purchased the GDRs in an illiquid foreign market and sold them in the domestic market. The foreign institution named in the order is European
American Investment
Bank, while the sub accounts accused are India Focus Cardinal Fund, MAVI Investment, KII and Sophia Growth - A share Class of Somerset India Fund. The order highlighted the role of Arun Panchariya, who manages the India Focus Cardinal Fund, in the manipulation and barred him from participating in the Indian markets.
“It appears that Mr Arun Panchariya is a common link between the company and the initial subscribers to GDRs and for the purchase of GDRs by sub-accounts as well as selling to their majority counterparties in the domestic market,” it said. “India Focus is observed to be the most active in converting GDRs managed by Panasia and selling them in the Indian markets.
The entities, including a foreign institutional investor and some sub accounts, sold the shares repeatedly to select counterparties to generate liquidity and attract retail investors, the regulator said in a 44-page order on Wednesday.
“Around 33-75% of the shares sold by these FIIs in various scrips were bought by these recurring clients,” the Sebi order, signed by whole-time member Prashant Saran, said. The investigation covered 344 trading days starting from January 1, 2009 to May 31, 2010.
The regulator said a few of these companies issued GDRs at a discount to the prevalent market price, resulting in a loss to the retail investors. “The liquidity in the scrip is not sufficient for sale of large quantity of shares without registering a steep price fall,” the order said. Sebi said the beneficiaries of this arrangement were the GDR-issuing companies, which ended up with a surge in net worth, the lead manager of the issues as they earned commissions for providing services, and the sub-accounts that purchased the GDRs in an illiquid foreign market and sold them in the domestic market. The foreign institution named in the order is European
American Investment
Bank, while the sub accounts accused are India Focus Cardinal Fund, MAVI Investment, KII and Sophia Growth - A share Class of Somerset India Fund. The order highlighted the role of Arun Panchariya, who manages the India Focus Cardinal Fund, in the manipulation and barred him from participating in the Indian markets.
“It appears that Mr Arun Panchariya is a common link between the company and the initial subscribers to GDRs and for the purchase of GDRs by sub-accounts as well as selling to their majority counterparties in the domestic market,” it said. “India Focus is observed to be the most active in converting GDRs managed by Panasia and selling them in the Indian markets.