Investor hit with $9.6m fine over illegal deals

FSA dishes out record punishment to Indian businessman following scam at Stock Exchange
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The Independent Online

A Dubai-based private investor was yesterday hit with a $9.62m (£6m) penalty by the City watchdog, the largest it has yet levied against an individual for market abuse.

The Financial Services Authority (FSA) said Rameshkumar Goenka, an Indian businessman, pushed through a series of huge trades in securities issued by Reliance Industries to boost their closing price in the final seconds of the London Stock Exchange's closing auction held at the end of the trading day.

The move was intended to ensure he avoided a $3.1m loss on a derivative contract he had taken out with an unnamed bank.

Reliance is an Indian conglomerate with interests ranging through petrochemicals, energy, textiles and even retail. While its main listings are in Bombay and New York, its securities are also tradable on a number of other exchanges, including London's.

The crooked trades were executed in October 2010 because the payout on the derivative he held was partly dependent on the closing price of Reliance. Because the trades meant that the bank that issued the derivative overpaid him, he was told to pay back the $3.1m in addition to a $6.5m fine. The watchdog said that Mr Goenka had agreed to settle at an early stage of the inquiry, reducing the fine by 30 per cent.

According to the FSA, the plot was hatched when an adviser to Mr Goenka contacted a London broker in order to understand how the auction worked.

A number of "dry runs" were performed before it was enacted. Orders equivalent to 280 per cent of the average daily volume of trading in Reliance in London were pushed through at a time when other traders would have no time to respond. This inflated the shares' closing price.

At the conclusion of the auction Mr Goenka was said to have hailed the London broker as "the world's number one broker", saying that he really appreciated his efforts and assuring him of "good business" in the future.