<p>A mysterious Mr X has surfaced in the UK Financial Services Authority’s (FSA’s) case against former UBS employee Sachin Karpe.
Mr X, as the person has been referred to by the UK’s Upper Tribunal, denied he owned an account with the UK-based UBS Wealth Management, called Customer A account, which was used by the deposed UBS official to make large-scale unauthorised transactions. Mr X’s denial came in an interview with the FSA held in front of the Indian market regulator, Securities and Exchange Board of India (Sebi), according to a judgment by the tribunal two weeks ago.
While everyone is tightlipped on the issue, the Sebi presence is a giveaway that Mr X is an Indian.
|WHO IS MR X?
|UK Tribunal says:
|* Mr X’s Customer A account at the centre of Sachin Karpe’s operations
|* Several purported loans, compensation of losses routed via the account
|* Over $1.5-bn dollar trades and £634-mn (roughly $1 bn) pound trades were done
|* 67 unauthorised transfers made from the Customer A account to others
|* Several payments made from
Cell E account of ADAG to the
Customer A account
|Mr X in all probability is an Indian,
as his interview with the FSA took place in Sebi’s presence
“It is observed that the so-called beneficial owner of Customer A (Mr X) had, when interviewed by the FSA in the presence of the Indian regulator, Sebi, denied that he held the Customer A account,” the tribunal said in a judgment upholding an FSA order slapping a fine of £1.25 million (roughly $1.9 million) on the former UBS wealth management managing director.
An email questionnaire sent to Sebi asking for details of Mr X remained unanswered.
Mr X was the supposed beneficial owner of Customer Account A, used by Karpe allegedly to carry out unauthorised trading. Karpe, the tribunal said, “carried out unauthorised trading on various customer accounts, in particular using the account of one customer, ‘Customer A’.”
The total value of these transactions works out to nearly $2.5 billion or roughly Rs 14,000 crore. In this account, Karpe allegedly placed 321 foreign exchange trades between February 2007 and January 2008. “The trading comprised 192 trades on a US dollar sub-account with a total value of $1.5 billion and 129 trades on a British pound sub-account with a total value of £635.4 million (roughly $1 billion),” the tribunal said.
In an email response, Karpe referred to his official statement, which said, “I have not gained any personal benefit directly from any of the transactions and this has been acknowledged by the Upper Tribunal. My actions were largely to assist clients and as a result of the nature of business at UBS, as well as the then prevalent compliance culture at UBS, for which it has already accepted censure by the FSA.”
“I am very disappointed that the Upper Tribunal did not consider all the evidence and arguments put forward by me and on my behalf, though I am happy that the tribunal did at least acknowledge that some of the clients may have made excessive claims. While I do not agree with some of the conclusions, and in particular with the tribunal’s approach to the important legal issue, I have decided not to take the case further on appeal. I would like to settle the matter with the FSA and put this old matter behind me,” the statement said.
The Customer A account also received several unauthorised payments from the Pluri Cell E account where funds belonging to Reliance ADAG were held, the tribunal said. Pluri Cell E is a Mauritius-based structure and is short for ‘Pluri Emerging Companies PCC Cell E Emerging Markets Growth Fund’, which figures in a Sebi order.
According to the tribunal, Karpe arranged for six unauthorised redemption payments to be made, which transferred funds invested in the fund by Reliance ADAG to Customer A despite being aware that, “Customer A had never invested in the fund, the money being transferred belonged to Reliance ADAG, not Customer A and that Reliance ADAG was unaware of the redemptions and had not authorised them.”
The judgment also said there was no connection between Cell E or Reliance ADAG and the Customer A account.
According to a copy of the tribunal judgement reviewed by Business Standard, between September 2007 and January 2008, Karpe instructed another trader “to arrange for three redemption requests to be made to Cell E, which resulted in six payments totalling $8 million to be made from Cell E to the Customer A account. There was (it is pointed out in the statement of case) no connection between Cell E or its beneficial owner, Reliance ADAG, and the Customer A account; Customer A did not invest in Cell E. Reliance ADAG was not aware of the payments that were made to Customer A.”
The judgment also cited instances where money that came to Customer A account from ADAG’s Cell E account was allegedly used to make good the losses made in unauthorised trades in other customer accounts and repay purported loans amounting to $3.5 million, arising out of these unauthorised trades.
A Reliance Group spokesperson reiterated a statement made when the tribunal order was first reported last week. The spokesperson last week dismissed the development as one pertaining to an old and long-settled issue. “These matters are five years old, relating to 2007, and so far as Reliance entities are concerned, these have already been dealt with and closed by the Indian regulators in January 2011, under the consent framework, as was widely reported at that time,” said the Reliance Group spokesperson.
“UBS had accepted the weaknesses in its internal systems and processes, leading to a large number of unauthorised actions by these employees in relation to a large number of its customers, including inter alia unauthorised transactions of which Reliance was not aware. UBS has also settled the matter in the UK by payment of a fine,” the spokesperson added.
The tribunal said, “We base no conclusions on Mr X’s denial that he was the beneficial owner of Customer A. We, in common with the FSA, conclude as a fact that no instructions had been given by Mr X as regards the many Customer A transactions.”
The tribunal has anonymised names of clients and their company names that have not been already identified by the press. “At the start of the hearing of this reference, and following submissions from the press, this tribunal issued a direction restricting the reporting of the names of “actual or prospective clients of UBS or any related party of such”. "We have anonymised references to UBS clients (using the term Customer A, Customer B etc) save as regards those clients and clients’ companies that have already been identified through articles in the press,” the judgment said.
This is the first of a three-part series on the tribunal proceedings