Under attack from Canada-based Veritas for alleged governance lapses, the IndiaBulls group today accused the firm of profiteering by helping subscribers to enter into short positions ahead of the wider release of the report. In a police complaint, the company has alleged that Veritas analyst Neeraj Monga demanded money and offered to delay the wider release of the report. “Indiabulls officers filed a complaint to the police against the malafide Veritas report, along with an email evidence where Neeraj Monga has demanded money through his personal email and that if monies are given in time, then he would hold back the report,” the group said in a statement.
According to a senior group official, “Heavy short positions were built up in the stock ahead of the release of the report on Wednesday, enabling people to take home profits by squaring off when the prices fell.”
Data from the exchanges seem to suggest there was a build-up of shorts in IndiaBulls Real Estate, the only group stock in the F&O segment. According to data from the exchanges, open interest in IndiaBulls Real Estate shot up from 11.9 million on August 1, the date of the latest report to 16.2 million on August 8, when the report was widely circulated among brokers and market players.
Short selling refers to selling stocks that one does not own, with a view to buy these later when the prices fall. In India, direct short sales is not allowed. However, traders use the futures and options (F&O) segment, where such transactions are allowed, to execute short sales.
Among the three stocks covered by the latest IndiaBulls report, only IndiaBulls Real Estate is available for trade in the F&O segment. The increase in open interest coinciding with a fall in the share price indicated that the shorts were building up in the counter, said brokers. Between August 1 and August 8, the stock fell by 4.4 per cent as against a two per cent gain in the Sensex.
Similar build-up in open interest accompanied by a fall in the share price was noticed in the earlier reports by Veritas this year. On March 2, a damning report by Veritas on the largest real estate player, DLF, was circulated. Between February 24 and March 2, the open interest had gone up from 22 million shares to 30 million, while the stock price fell 10 per cent. The broader market fell 1.6 per cent.
On June 19, a Veritas report on Reliance Communications setting the target price of Rs 15 surfaced. Over the preceding week, open interest in the counter went up from 57 million to 68 million as the stock shed nearly five per cent. The Sensex was flat during the period.
The Indiabulls statement further added that the Veritas report dated August 1, 2012 was released to certain select group of people before being released to the media and institutional shareholders after seven days on August 8, 2012, along with a TV interview on August 8 by Neeraj Monga. Monga openly tried to distort facts and presented erroneous data in his answers for fulfiling his personal agenda of profiteering, the statement alleged.
In the email sent to a London based hedge fund Altimas Partners on August 7, Monga allegedly demanded $40,000 for subscription to Veritas reports for the current year. He is also said to have offered to delay wider circulation of the Indiabulls report if the fund officials promised to subscribe. "Our first year subscription price is $50K. For the remainder of the current year we are signing up for $40K. We plan to publish at least two more reports for the rest of the year. We have published on five stocks so far this year. The report on DLF was published in March and that on RCom in June. Our other report covering an additional three stocks is not public yet. If you sign today we can hold the wider release of the third report back by one day for you to read it and take action if you so desire," Monga allegedly wrote in this email.
In an email response Naresh Monga of Veritas said, “Indiabulls appears to be basing its complaint on an email from Prashant Periwal, a fund manager from Altima Partners in London, who is a fund manager who owns Indiabulls group stock and who contacted us for our research. Veritas’ commercial practices are of the highest standards and integrity. We are disappointed that Indiabulls is attempting to discredit our company and us individually, rather than addressing the issues outlined in our research.” Monga added that Veritas stands by its research, which is based on publicly available documents .
“We have not contacted Indiabulls before or after our research was published. We are an independent research company servicing institutional investors and funds. We sell research for a subscription fee, as is the industry practice in India and the world over. We are regulated and licensed by the relevant financial service authorities to do so.”
Veritas also pointed out that it does not have any proprietary trading positions and referred to its clean track record. Monga, however, added that “If there are any factual errors we will correct those.”