In a major insider trading case in shares of L&T Finance, Sebi today refused to vacate its interim ban on Factorial Master Fund, a Hong-Kong based fund founded by an Indian origin banker, from securities markets.
This hedge fund 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.
Besides, a probe by the capital markets regulator 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.
Confirming the order, Sebi said Factorial was guilty of violating fraudulent and unfair trade practices regulations and the fund traded on the basis of its access to unpublished price sensitive information (UPSI), based on which it took such aggressive positions.
The Securities and Exchange Board of India, through an ad interim ex-parte order in June had barred Factorial Master Fund from accessing the securities market in any manner whatsoever, till further directions.
"I find that the noticee has not been able to show sufficient and plausible reason to draw any inference other than those drawn in the interim order with regard to its activities in the securities market. The noticee has failed to make out a prima facie case and to establish balance of convenience in its favour at this stage," Sebi Whole Time Director Rajeev Kumar Agarwal said in today's order.
"The facts and circumstances, as alleged in the interim order indicate a device or artifice to deceive the investors in the securities market and make profit in a manner which was quite disruptive to the market equilibrium. I, therefore, am of the considered view that no intervention is called for, at this stage, in either vacating the interim directions or modifying it," he added.
Consequently, Sebi today confirmed "the direction issued in respect of Factorial Master Fund vide an ad-interim ex-parte order dated June 5, 2014."
According to Sebi, "noticee employed a device or artifice to deceive the investors in securities market and make profit in a manner which was quite disruptive to the market equilibrium."
Factorial, which has its office in tony central business district of Hong Kong, was founded by Indian-origin management graduate Barun Agarwal.
