Financial Conduct Authority
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FSA fines Dubai based investor US$ 9.6 million for market abuse
The Financial Services Authority (FSA) has fined Rameshkumar Goenka, a Dubai based private 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 will use the restitution element to reimburse the bank which overpaid Goenka that amount as a result of his market abuse.
On 18 October 2010 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. 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 (OTC) structured product which matured on 18 October 2010 and for which the pay-out depended on the closing price of Reliance securities that day. By increasing 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 similar behaviour in relation to a separate structured product in April 2010 but on that occasion no actual trading took place due to events beyond his control.
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.”
Notes for editors
The Final Notice relating to Rameshkumar Goenka is available on the FSA website.
The fine of $9,621,240 (£6,108,707) is the largest yet imposed by the FSA on an individual for market abuse. The penalty was calculated under the FSA’s new penalty regime. In May 2010 Simon Eagle was fined £2.8 million for market abuse. In September this year Michiel Visser was fined £2 million for market abuse and breaching Statement of Principle 1.
Goenka received a 30% discount on his fine for settling at an early stage of the FSA’s investigation. If Goenka had not settled early the financial penalty element of the fine would have been $9,310,920. The total fine (including the restitution element) would therefore have been $12,414,560 (equivalent to approximately £7.7 million).
The relevant securities were Reliance Global Depository Receipts (GDRs). These are parcels of shares in a particular company which are listed and traded on international exchanges separately from the company’s shares. Reliance has a primary listing in India but its GDRs are traded on the LSE. In publishing its findings against Goenka, the FSA is not in any way criticising Reliance.
The FSA has recently issued a consultation document: Retail Product Development and Governance - Structured Products Review. Market participants are reminded of the need to give careful consideration to product design.
The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the U.K financial system.