Rameshkumar Goenka was given the fine for manipulating the closing share price of Reliance Industries on the London Stock Exchange, in order to ensure he avoided a potential loss of £3m on a structured product he had purchased from a bank.
The fine comprises a penalty of $6,517,600 (approximately £4m) plus a restitution element of $3,103,640 (approximately £2 million). The FSA said it will pay the restitution amount to the bank as reimbursement for the amount it overpaid Goenka.
Artificially inflated
In a statement, the FSA said that on 18 October 2010 Goenka placed orders and executed trades which artificially inflated the closing price of Reliance securities. Goenka had arranged for a pre-planned series of substantial and carefully timed orders to be placed in the final seconds of the LSE’s closing auction.
The orders were placed and the trades executed with the intention of increasing the closing price of the Reliance securities above a certain level. The timing of the “substantial” orders was intended to ensure that market participants had insufficient time to respond before the closing price was determined.
On the same day, 18 October, an over-the-counter structured product which was reliant on the closing price of Reliance securities and held by Goenka was due to mature. By increasing the closing price, Goenka avoided a loss of $3,103,640 under the terms of the structured product. The bank, which was the counterparty to the structured product, overpaid Goenka $3,103,640 as a result of his manipulation of the Reliance closing price.
The regulator added that Goenka had planned to engage in similar behaviour in relation to a separate structured product in April 2010 but on that occasion no actual trading took place due to events beyond his control.
Tracey McDermott, acting director of enforcement and financial crime at the FSA, said: “Goenka’s structured product was an investment that would have made him a considerable profit had it been successful for him. When he saw that it was not going to produce the desired result Goenka manipulated the market to avoid a substantial loss.
“The impact of such behaviour goes far beyond one counterparty. Market confidence will suffer if participants cannot be satisfied that the price of quoted securities reflects the proper interplay of supply and demand.”
