Sebi seeks help from US regulator in Factorial probe

After looking into trading activities in shares of L&T Finance, Sebi had found Factorial guilty of violating fraudulent and unfair trade practices regulations

Markets regulator Sebi has sought help from its US counterpart SEC, as it races against time to complete its probe into an alleged insider trading case involving foreign hedge fund Factorial.

After looking into trading activities in shares of L&T Finance, Sebi had found Factorial guilty of violating fraudulent and unfair trade practices regulations, saying it traded on the basis of its access to 'unpublished price sensitive information' (UPSI).

Hong Kong-based Factorial, founded by Indian-origin banker Barun Agarwal, has denied any wrongdoing and has said it had traded on the basis of prevailing negative market sentiments about the shares of L&T Finance and not on the basis of any UPSI as alleged by Sebi.

Factorial 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 Securities Appellate Tribunal (SAT) against the Sebi order.

The SAT last week asked Sebi to complete its probe within two months and serve a show-cause notice and pass its final order in one month thereafter, failing which the restraint order slapped on Factorial would come to an end.

In its submission before SAT, Sebi said the investigation in this case involved cross-border investigation and it has sought assistance of the US Securities and Exchange Commission (SEC) in the matter.

It was submitted before the SAT by Sebi counsel that the probe was at a "crucial stage", but it might take at least 4-5 months for completing the investigation.

Sebi had said that Factorial was involved as potential investor in the market gauging exercise undertaken by Credit Suisse (CS) as 'Seller Broker' of L&T Finance for its Offer for Sale (OFS) in March last year.

Factorial had traded in derivative contracts of L&T Finance with Offshore Derivative Contracts (commonly known as P-Notes) through five different FIIs (Foreign Institutional Investors) - namely Macquarie Bank, Goldman Sachs Singapore, Merrill Lynch CM Espana, Nomura Singapore and Citigroup Global Markets Mauritius Ltd.

The investment banking team of Credit Suisse had contacted Factorial in relation to the OFS of L&T Finance.

"On examination of Bloomberg chat transcripts provided by CS, it is observed that on March 13, 2014, information like, 'likely to come in at a steep discount about 70 types' was being circulated amongst the members of Equity team of Credit Suisse," Sebi had said in its interim order.

In this chat, '70' apparently referred to the price for sale of shares in the OFS, the floor price for which was actually later fixed at Rs 70 per share.

"It is noted that this message from one CS employee to another in the Equity team was sent at 09:21:24, much before the formal announcement of OFS and the floor price at 21:22:00 on the same day.