Sebi bars 11 entities from securities market for GDR manipulation

Markets regulator Sebi on Tuesday barred 11 entities, including Farmax India, Vintage FZE, India Focus Cardinal Fund and Highblue Sky Emerging Market Fund, from securities market in a matter related to alleged manipulation of global depository receipts (GDR) issuance.

The regulator has directed Farmax to continue to pursue the measures to bring back the outstanding amount of $72.20 million into its bank account in India, according to an order.

The watchdog directed Arun Pachariya, Vintage FZE, India Focus Cardinal Fund and Highblue Sky Emerging Market Fund to disgorge illegal gains of Rs 51.74 crore and Rs 2.57 lakh jointly and severally along with 12 per cent interest made by the funds respectively.

In addition, Prospect Capital Ltd and its executive John Behar have been barred from rendering services in Indian market for two years.

The matter pertains to issuance of GDRs amounting to $59.92 million by Farmax in June 2010 and $11.98 million in August 2010. Prospect Capital Ltd was the lead manager of GDR issue.

It was found that Vintage, an entity owned by Arun Pachariya had obtained load from European American Investment (EURAM) Bank AG to subscribe to GDRs, for which security was provided by Farmax by pledging GDR proceeds, the Sebi order said.

Since the underlying of GDRs i.e., equity shares resulted in an increase of capital of the company without proper consideration, such arrangement was fraudulent in nature. Moreover, the same was not disclosed to the shareholders and investors.

Besides, Farmax wrote off $72.20 million and $56.60 were written off on account of loan default by Vintage. Farmax gave misleading information regarding loan amounting to $15.60 million which was never extended to its UAE subsidiary and later written it off, the order said.

Farmax gave misleading, distorted information to its shareholders and caused loss to its shareholders to the tune of $72.20 million, it said.

India Focus Cardinal Fund and Highblue cancelled GDRs and offloaded converted shares in the Indian securities market and made illegal gains of Rs 51.74 crore and Rs 2.57 lakh respectively.

It was observed that AP (Arun Pachariya) controlled every stage of GDRs from issuance of GDRs to the sale of converted shares thereby committed fraud on Indian shareholders of Farmax.

For violating market norms, the entities and their respective officials have been barred from accessing the securities market in the range of two years to five years.

Sebi has also "warned" EURAM Bank and Cardinal Capital Investors "to ensure that all its future dealings in the Indian securities market be done strictly in accordance with law.