Rameshkumar Satyanarayan Goenka, a Dubai-based private investor, has been fined $9,621,240 (approximately £6 million) by the UK’s market regulator Financial Services Authority (FSA) for artificially inflating the closing price of Reliance Industries (Reliance) securities on the London Stock Exchange with a view to profit from it, the London-based FSA said in a statement on Wednesday.
“This is the largest fine imposed by the FSA on an individual,” the regulator said, adding that the fine would have been an even higher $12.4 million had Goenka not received a 30 per cent discount for settling at an early stage of the FSA’s investigation.
“Goenka is an Indian businessman who has been living in Dubai for the last 12 years. He is a prominent and sophisticated investor with a substantial portfolio of investments,” the FSA said in the declaration detailing the facts of the investigation.
Goenka was chairman and managing director of Bombay Stock Exchange-listed Suashish Diamonds. In June 2011, he resigned and was replaced by his son Ashish Goenka. The group has operations and established subsidiaries/associates in the US, Hong Kong, Dubai, Shanghai, and Botswana.
Goenka’s fine of $9,621,240 comprises a penalty of $6,517,600 (which would have been $9,310,920 without the early settlement discount) plus a restitution element of $3,103,640. “The FSA will use the restitution element to reimburse the bank which overpaid Goenka that amount as a result of his market abuse,” the regulator said.
Goenka was chairman and managing director of BSE listed Suashish Diamonds. In June 2011, he resigned and was replaced by Ashish Goenka.
In the final notice dated October 17, 2011, sent by the FSA to Goenka, the regulator said Goenka was fined so because he placed orders to trade which artificially inflated the closing price of Reliance GDRs, an instrument traded on the International Order Book of the London Stock Exchange, on October 18, 2010.
“Goenka arranged for a series of substantial and pre-planned trades in those securities to be executed in the final seconds of the LSE closing auction. The orders were placed with the intention of increasing the closing price for Reliance GDRs above a certain level,” the notice stated.
“At the time, Goenka held a structured product on which the pay-out depended on the closing price of Reliance GDRs that day. By increasing the closing price, Goenka was able to avoid a loss of $3,103,640 under the terms of the structured product,” the FSA said, adding that this was considered market manipulation by the regulator and therefore invited a fine. “The FSA has concluded that Mr Goenka’s actions amounted to market abuse (market manipulation).”
The regulator said that it had imposed the unprecedented amount – the fine is more than twice the previous high – in part because of the 66-year-old Goenka’s experience as an investor, that it wasn’t the first time that he was involved in similar misconduct, as well as the pre-planning involved in the action.
“The FSA considers that Mr Goenka’s misconduct was serious and has taken account of: a) the fact that Goenka had planned to engage in similar behaviour in April 2010 in relation to another structured product that he held; b) the fact that Goenka’s misconduct involved considerable pre-planning. The trading concerned necessitated very substantial financial outlay and involved others; and c) Goenka’s extensive experience as an investor,” the FSA noted.
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, FSA’s 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.”