The Securities and Exchange Board of Indian (SEBI) has fined Reliance Industries Rs 250 million and chairman Mukesh Ambani Rs 150 million for fraudulent trades. It alleged that the oil-to-telecoms conglomerate took derivative short positions in shares of separately listed Reliance Petroleum in 2007 through third parties before it sold a five per cent stake in the business.
Sebi had conducted an investigation into the trading of RPL shares between November 1 and November 29, 2007, to see whether there was any violation of securities laws. It observed that a resolution had been passed by the RIL board on March 29, 2007, approving the operating plan for FY08 and resource requirements for the next two years of about Rs 87,000 crore. RIL decided to sell about five per cent of its shareholding in RPL in November 2007. Subsequently, RIL appointed 12 agents to undertake transactions in November 2007 RPL futures on its behalf.
The regulator also fined Navi Mumbai SEZ Rs 20 crore and and asked it to also pay Rs 10 crore in connection with the case. RPL was absorbed by RIL in 2009. According to ET, Sebi’s contention is that RIL’s sale of five per cent stake in RPL was preceded by the acquisition of RPL futures by parties acting on behalf of RIL. Subsequently, RIL’s sale of its stake lowered the settlement price of RPL in the futures and options (F&O) segment, allowing profits to be made.
BJ Dilip, Sebi adjudicating officer, in a 95-page order said it was observed that RIL had entered into a well-planned operation with its agent to corner the open interest in the RPL futures and to earn undue profits from the sale of RPL shares in both cash and futures segments and to dump large number of RPL shares in the cash segment during the last 10 minutes of trading on the settlement day resulting in a fall in the settlement price.
The order stated that RIL admittedly appointed twelve agents, between October 30, 2007 to November 3, 2007, to undertake transactions in November 2007 RPL Futures on its behalf. During the period of November 1, 2007 to November 29, 2007, various transactions were undertaken by RIL in the Cash Segment and by RIL through the agents in F&O Segment. From November 15, 2007 onwards, RIL’s short position in the F&O Segment constantly exceeded the proposed sale of shares in the Cash Segment.
On November 29, 2007, RIL sold a total of Rs 2.25 crore shares in the Cash Segment during the last 10 minutes of trading resulting in fall in the prices of RPL shares, which also lowered the settlement price of RPL November Futures in the F&O Segment. RIL’s entire outstanding position of Rs 7.97 crores in the F&O Segment was cash settled at this depressed settlement price resulting in profits on the said short positions held by agents.
“The above strategy undertaken by RIL has resulted in manipulation of settlement price of RPL November Futures and prices of RPL shares in the Cash Segment. I note that Noticee-2 (Mukesh Ambani), being the managing director of RIL, was responsible for the manipulative activities of RIL,” the Sebi order said.
The regulator states that companies should exhibit highest standards of professionalism, transparency and good practices of corporate governance, which inspires confidence of the investors dealing in the capital markets. Any attempt to deviate from such standards will not only erode the confidence of the investors but also affect the integrity of the markets.