SAT asks Sebi to complete Factorial probe in two months

The Securities Appellate Tribunal today asked regulator Sebi to complete its probe within two months against Hong Kong-based hedge fund Factorial, which has been barred from markets in a major insider trading case involving shares of L&T Finance.
Sebi, which informed the Tribunal that its probe was at a "crucial stage", has also been asked to issue a show-cause notice and pass an appropriate order within further one month thereafter if the findings of the investigation demands so.
In the event of Sebi failing to comply with the timeline prescribed by the SAT, the regulator's directive barring Factorial from the capital markets will come to an end, SAT Presiding Officer J P Devadhar said in his 31-page order.

Factorial, founded by an Indian-origin banker Barun Agarwal, was first barred by Sebi through an interim order passed in June, 2014, followed by a confirmatory order in October that year, pending its further probe into the matter.
The fund later approached SAT against the Sebi order.
After hearing the appeal, SAT ruled that Sebi is empowered to pass a restraint order pending investigation if there is a prima facie evidence to suggest violation to the rules.

In the present case, the prima facie view taken by Sebi, that Factorial was privy to Unpublished Price Sensitive Information before executing its trades, "is based on mere presumption and without any sustainable basis".

"In these circumstances, continuation of the restraint order is unjustified," SAT said, while adding that there can be no dispute that the appellant has suffered serious prejudice on account of restraint order which is in operation for nearly one year.
"However, since the restraint order passed against the appellant has already operated for nearly a year and since Sebi claims that the investigation is at a crucial stage, in the facts of present case, pending further investigation it would be just and proper" to pass this interim order, SAT said.
A probe by the capital markets regulator had found that Factorial was involved as potential investor in the market gauging exercise undertaken by Credit Suisse as 'Seller Broker' of L&T Finance for its Offer for Sale (OFS) in March.

Sebi had found Factorial guilty of violating fraudulent and unfair trade practices regulations and the fund traded on the basis of its access to unpublished price sensitive information (UPSI), based on which it took such aggressive positions.