Sebi deepens probe in Castex stock manipulation allegation

Surveillance data raise red flags on trading pattern

Trouble for Castex Technologies, earlier Amtek India, is likely to mount as the leads generated by the surveillance system at the markets regulator, Securities and Exchange Board of India (Sebi), suggest an unusual trading pattern.

According to sources, trade data analysis at Sebi between June and August had generated red flags, which Sebi is probing further. These red flags are typically generated when the system detects artificial volumes or similar sets of buyers and sellers.

“The way the stock first shot up and later fell sharply points to an unusual trade pattern. There are some indicators the system has thrown up which warrant a formal investigation,” said a source, without going into details.

Based on the irregularities observed in the trade data provided by the exchanges, Sebi asked the company for additional details two weeks ago. A company spokesperson told the Business Standard these details had been provided. An e-mail to Sebi remained unanswered.

The completion of investigation and action by Sebi would be a shot in the arm for bond holders who had complained to the markets regulator of suspicious activity in the stock price. They had said the price was inflated by company shareholders to ensure mandatory conversion of foreign currency convertible bonds (FCCB) to shares between June 19 and July 13.

“Evidence is being gathered. If substantial enough, Sebi can ask the company to return the money to the bondholders under Section 11B,” said a source. Under this, Sebi can pass an order without waiting to hear the defence, to protect the interest of investors.

Foreign funds had sought regulatory action against mandatory conversion of the bonds to shares in the month of August, which they say was triggered by stock price manipulation. Sebi first indicated a probe in the matter on September 10 and said it had sought details from the stock exchanges. In spite of the preliminary probe, Castex completed the conversion of $70 million of FCCB into shares on September 25.

The stock soared from April to June, but lost 90 per cent of the value from a peak of Rs 363 on July 13.