The Financial Services Authority (FSA) in UK has fined Rameshkumar Goenka, a Dubai based Indian investor, $9,621,240 (approximately £6 million) for manipulating the closing price of Reliance Industries (Reliance) securities on the London Stock Exchange (LSE).
This is the largest fine imposed by the FSA on an individual. Goenka’s fine of $9,621,240 comprises a penalty of $6,517,600 (approximately £4 million) plus a restitution element of $3,103,640 (approximately £2 million). The FSA said it will use the restitution element to reimburse the bank which overpaid Goenka that amount as a result of his market abuse.
A source in FSA said that any criminal proceeding that would have led to a jail sentence on Goenka, would have been difficult if not impossible. “Historically there have been only two extraditions from Dubai to UK. One was a dictator and another I think was a mass murderer.”
This source added that Goenka has been fined far more than any profits he might have made through the manipulation. In this particular case, Goenka according to FSA had tried to cut his losses by manipulating RIL stock prices, rather than make any monetary gains.
Tracey McDermott, acting director of enforcement and financial crime, said, “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. The impact of such behaviour goes far beyond one counterparty. Market confidence will suffer if participants cannot be satisfied that the price of quoted securities reflects the proper interplay of supply and demand.”
In a media statement the FSA said, on October 18, Goenka placed orders and executed trades which artificially inflated the closing price of Reliance securities. Goenka had arranged for a pre-planned series of substantial and carefully timed orders to be placed in the final seconds of the LSE’s closing auction.
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The orders were placed and the trades executed with the intention of increasing the closing price of the Reliance securities above a certain level. The timing of the substantial orders was intended to ensure that market participants had insufficient time to respond before the closing price was determined.
Goenka held an over-the-counter structured product which matured on October 18 and, for which the pay-out depended on the closing price of Reliance securities that day. By raising the closing price Goenka avoided a loss of $3,103,640 under the terms of the structured product. The bank, which was the counterparty to the structured product, overpaid Goenka $3,103,640 as a result of his manipulation of the Reliance closing price.
Goenka had planned to engage in a similar practice in April, but on that occasion no actual trading took place due to events beyond his control, FSA said.