Dubai Based Investor Fined Record $9.6 MLB by FSA

Dubai Based Investor Fined Record $9.6 MLB by FSA

Largest FSA fine on an individual; Rameshkumar Goenka manipulated Reliance Industries securities; FSA's reach stretches overseas as it targets individuals -lawyers.

November 9, 2011 3:44 by Reuters

A Dubai-based private investor has been fined a record $9.6 million for manipulating the securities of Indian refining giant Reliance Industries on the London Stock Exchange as the UK regulator stretches overseas to curb market abuse.

Britain’s Financial Services Authority (FSA) said on Wednesday it had slapped the penalty on Rameshkumar Goenka for artificially inflating the closing price of Reliance GDRs in 2010 to avoid crystallising losses on a structured product.

The fine is more than twice the size of the FSA’s previous record penalty on an individual — a 2.8 million pounds ($4.5 million) fine on former broker Simon Eagle for market abuse last year — as it was calculated under a new penalty regime.

“The impact of such behaviour goes far beyond one counterparty,” said Tracey McDermott, the FSA’s acting director of enforcement and financial crime.

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

Goenka was attempting to avoid a $3.1 million loss on an over-the-counter structured product that matured on Oct. 18, 2010. The pay-out was dependent on the Reliance closing price on that day.

He arranged for a series of substantial and carefully timed orders to be placed in the final seconds of the LSE’s closing auction to push up the price of the securities, the FSA said.

An unnamed bank, which was the counterparty to the structured product, promptly paid Goenka the $3.1 million.

Goenka had planned a similar scam in relation to a separate structured product in April 2010 but the FSA said no actual trading took place “due to events beyond his control”.

“Overseas traders have for too long been beyond the FSA’s remit,” said Simon Morris, financial services partner with UK law firm CMS Cameron McKenna. “But the City (of London) will welcome today’s announcement as demonstrating that the FSA really can reach as far as it needs to fight market abuse.”

Harvey Knight, a partner at UK law firm Withers and an ex-FSA senior lawyer, noted that this was “a real statement of intent by the FSA”.

“In the wake of the financial crisis, the FSA has increasingly directed its attention against individuals rather than institutions,” he said. “This underlines… just how tough a stance the regulator is prepared to take against them.”

Goenka was fined $6.4 million plus a restitution of $3.1 million, which the FSA said it would pass on to the bank involved. The final penalty includes a 30 percent discount for settling with the regulator at an early stage.