Investor fined $9.6 million for manipulating RIL securities in UK

Rameshkumar Goenka, an Indian businessman living in Dubai, was found to be manipulating the securities of RIL by inflating the closing price of the company’s GDRs, listed on the London Stock Exchange, on 18th October 2010. The British market watchdog FSA has fined Mr Goenka $9,621,240 (about six million British pounds)

London: British financial market regulator Financial Services Authority (FSA) has imposed a fine of $9.6 million (about Rs50 crore) on a Dubai-based Indian investor for manipulating UK-listed securities of Mukesh Ambani-led Reliance Industries (RIL), reports PTI.

This is one of the biggest penalties imposed abroad for manipulation of foreign-listed securities of an Indian company. Besides, it is also the biggest ever fine imposed by the FSA on an individual for market abuse.

The wrongdoing was found to be committed by the investor alone and the company, India’s most valued firm, whose securities were manipulated, itself has not been implicated in the case.

The British market watchdog FSA said in its order that it has fined Rameshkumar Goenka, an Indian businessman living in Dubai for past 12 years, $9,621,240 (about six million British pounds).

Mr Goenka was found to be manipulating the securities of RIL by inflating the closing price of the company’s GDRs (Global Depository Receipts), listed on the London Stock Exchange, on 18th October 2010.

The shares of RIL, the flagship company of the Indian business conglomerate led by India’s richest person Mukesh Ambani, are primarily listed in India, but their GDRs are traded on the LSE also.

GDRs are like certificates of shares of a foreign company that can be issued and traded on international exchanges outside the company’s home country.

Announcing the penalty order, FSA said that “in publishing its findings against Mr Goenka, the FSA is not in any way criticising Reliance.”

FSA said that Mr Goenka was a “prominent and sophisticated” investor with a substantial portfolio of investments and had failed in a similarly-planned exercise for a different structured product in April 2010.

The fine could have been much higher at over $12.4 million (about Rs 62crore), but Mr Goenka was granted a 30% discount on his fine for settling the case at an early stage of the FSA’s investigation.

FSA said that Mr Goenka on 18 October 2010 placed orders and executed trades which artificially inflated the closing price of Reliance securities on the LSE.

Mr Goenka had held an over-the-counter (OTC) structured product maturing on 18 October 2010, for which the pay-out depended on the closing price of Reliance securities that day.

Because of the inflated price, Mr Goenka could avoid a loss of over $3 million on the previously purchased product.

As a result of his manipulation of Reliance closing price, the issuing bank of the structured product had to overpay him $3.1 million.

Dubai-based Mr Goenka's fine of $9,621,240 comprises a penalty of $6,517,600 and a restitution element of $3,103,640, which will be reimbursed to the bank.

Commenting on the order, Tracey McDermott, acting director of enforcement and financial crime at FSA, said: “Mr 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 Mr Goenka manipulated the market to avoid a substantial loss,” she added.

FSA said that Mr Goenka had an extensive experience as an investor and his misconduct involved considerable pre-planning and the manipulative trading necessitated very substantial financial outlay and involved others.

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Crisil to come up with credit indices to track bond market

Crisil will soon come up with credit indices that will track differently rated long-term and short-term bonds. These indices will help in penetration of corporate bond market in the country, which otherwise is less developed, director-capital markets of Crisil, Tarun Bhatia announced

Mumbai: Equities research and rating agency Crisil will soon come up with credit indices that will track differently rated long-term and short-term bonds and is likely to facilitate penetration of corporate bond market in the country, reports PTI.

“We will come up with credit indices that will track bond market. The various indices, we are planning to come up with are AAA rated long-term bond index, AAA rated short-term bond index, AA rated long-term bond index and AA rated short-term bond index,” director-capital markets of Crisil, Tarun Bhatia said here today.

He, however, said that the proposed indices would not be launched at one time and would be operational in phases.

“We will start with AAA rated bonds and then come to AA rated bond indices,” he added.

As per the research agency, these indices will help in penetration of corporate bond market in the country, which otherwise is less developed.

The rating firm will also come up with some sovereign indices that will track 10 year gilts along with T-Bills (treasury bills).

“Under sovereign indices, we will soon come up with a 10 year Gilt index, one year T-Bill index, 91 Day T-Bill index and composite T-Bill index,” Mr Bhatia said, without divulging the timeline for launch of these indices.

Currently, Crisil maintains Crisil long-term debt index, short-term debt index, liquid fund index, balanced fund index, MIP blended fund index, debt hybrid 75:25 index, and debt hybrid 60:40 index among others.

As per the research firm, more than 80 customised Crisil indices are used for benchmarking by mutual funds, insurance companies, pension funds and corporates.

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Mutual fund workshop on how to select the right scheme

Moneylife foundation conducts 91st seminar – this time on mutual funds.

The workshop on "How to choose the right mutual fund scheme", conducted by Moneylife Foundation trustee, Debashis Basu, at the Moneylife Knowledge Centre, drew a packed and engaged audience. Seeing the current volatility in the market an investor is unable to make a decision whether it is the right time to invest in equity or not due to the uncertain economic outlook. Mr Basu gave the participants a perspective on how investors should invest their money when it comes to investing in equity mutual funds, apart from explaining the different types of mutual funds and how to choose the best schemes.

Mr Basu gave an analysis of the benefits and the risks associated with each of the different types of mutual funds available and their investment strategies.
He explained that capital protection fund or monthly income plans are a misnomer. They invest 80% in fixed income securities and 20% in equity; how would capital be protected when the equities market crash or bond prices don’t go up? It would make more sense for the investor to put his money in a fixed deposit if he seeks no risk and wishes to protect his capital.

While there are hundreds of bond funds, "Bond funds are not for average savers", he said. They often give lower returns than bank fixed deposits (FDs) and have costs and volatility attached to them. Bonds usually come with the notion that they are risk free. But in fact they are not. Bonds come with an interest rate risk, whereby if the interest rate rises, the bond prices fall. No one can judge the rise and fall of interest rates, hence investing in bonds could be considered as speculative. Only those who have a thorough understanding of bonds should invest in these funds, else bank FDs would be better as there is no cost attached to it.

Hybrid funds, which invest certain portion of the portfolio in equity, debt and gold ETFs (exchange traded funds) are to be avoided too, as the performance of the fund is left to the mercy of the asset class in question and the fund manager's market-timing ability. Apart from this investors are left confused as to how such schemes would fit into to their portfolio as the asset allocation is not fixed and depends on the fund manager. Investors with some financial knowledge should do their own allocation and not opt for these funds.

About picking the best equity scheme, he said it was ideal to weigh the performance of the fund over a five-year rolling period. (Moneylife magazine regularly puts out such analyses.) The performance of funds in bear markets is a true test of a fund.

There are usually just four-five fund houses that consistently register good performance. Investors should plan a portfolio that is diversified across all sectors. Therefore, sector funds are better avoided. Investors should also avoid NFOs (new fund offers) and funds with fancy names, Mr Basu said.
Star ratings are often of no value, especially since funds often invest in stocks which are far from their objectives.

On the safe and smart way to invest in a volatile market, regular and periodic investments are the answer. SIPs (systematic investment plans) though a good option, are flawed if they are not adjusted for the growth option. Investors usually don't consider inflation and invest the same amount over the years. In fact, the value of money falls over the years, therefore, investors should incrementally increase their investment amount.

Mr Basu introduced the idea of value averaging, a better option compared to SIP. It is a strategy through which investors should buy more when the NAV is less and vice-versa, thus increasing returns. Over the long term value averaging has beaten SIP and SIP with growth by significant margin.

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COMMENTS

Kalpesh

6 years ago

I am a subscriber of Moneylife magazine.

How do I get to know, the date/time/location of any such future events in Mumbai?

Thank you.

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