By Himank Sharma
MUMBAI (Reuters) - The Securities and Exchange Board of India's (SEBI) confirmed its ban on Hong Kong-based hedge fund Factorial Capital Management Ltd on Thursday, saying the fund had not been able to disprove insider trading charges levelled against it earlier this year.
SEBI ban is the latest in a series of actions by the watchdog to crack down on rogue trades and wayward companies, in a bid to boost investor confidence in Indian capital markets.
The case against Factorial is SEBI's first major probe against a foreign investor in Asia's third-largest economy.
In an interim order issued in June, SEBI banned Factorial on suspicion the hedge fund short sold securities in L&T Finance Holdings Ltd, an Indian financial services firm, based on inside information.
SEBI said then that Factorial had built short positions in L&T Finance derivatives - effectively betting on a decline - before the announcement of a sale of company shares in mid-March, netting a profit of 200 million rupees ($3.23 million).
Factorial, in its submissions to the regulator, had asked for the ban to be lifted, claiming that its trades in L&T Finance were "based on high conviction, and fundamental and technical analysis" - not insider information.
On Thursday, the regulator dismissed Factorial submissions, saying that the fund has not been able to provide sufficient evidence against the charges.
"The facts and circumstances, as alleged in the interim order, indicate a device or artifice to deceive the investors in the securities market and make profit in a manner which was quite disruptive to the market equilibrium," SEBI's Rajeev Kumar Agarwal, a member of the regulator's board, said in the order on the regulator's website.
Barun Agarwal, a director at the fund in Hong Kong, declined to comment when reached by Reuters.
According to Indian rules, entities alleged to have broken rules can seek a revocation of ban and penalty during the investigation period, but Thursday's order means the fund will not be allowed to trade until SEBI delivers its final decision in the case, which could involve a monetary fine.
The fund had also claimed that since the interim order was passed without giving it an opportunity to present its case, SEBI should lift the ban during the investigation period.
(Editing by Sumeet Chatterjee and Clara Ferreira Marques)
