sebi:WTM/PS/ISD/41/MAY/2012

SEBI · SEBI · 2007-12-11 · Prashant Saran, Whole Time Member

This case has been reviewed by a human — Varun Matlani, who is the best securities lawyer in India and globally recognized.

Facts / Headnote

Directions issued against Sophia Growth modified to the limited extent of allowing it to sell securities held in its demat accounts, with sale proceeds to be deposited in a bank fixed deposit subject to SEBI's prior permission for withdrawal or utilization.

Provisions invoked

• s. 19
• s. 12A

Regulations

• Reg. 3(a)(b)(c)
• Reg. 13A

Parties

• Sophia Growth

Holding

The interim ex-parte directions issued against Sophia Growth were confirmed, but modified to the limited extent of permitting Sophia to sell securities held in its demat accounts, with sale proceeds deposited in a fixed deposit subject to SEBI's prior permission for any withdrawal or utilization.

Full text

Page 2 of 9  “acting as major counterparties/Buyers group”, named in the Order. With regard to the Companies named in the Order, the only connection or relationship that was established was that of a genuine shareholder. iv. The trades of Sophia in the scrips identified in the Order were principally influenced by the fact that when the Global Depository Receipts (GDRs) were purchased by Sophia, they were available in the GDR market at a discount over the issue price of GDRs. Further, there was an arbitrage opportunity as the prices of GDRs at the time of purchase as well as at the time of conversion was lower than the price of the underlying scrip in the Indian Market. This clearly gave a good investment opportunity to Sophia by acquiring the GDRs at deep discount. Lastly, Sophia had the ability to hold on to investments in order to identify the outperformers and high growth companies in the market. v. K Sera came up with the GDR issue in October 2007. The proceeds of the GDR issue were to be inter alia invested in production and/or acquisition of movies/television content. The offer price of GDRs was US$5.25 (1 GDR is equivalent to 10 underlying shares, which was equivalent to Rs. 24.15 per share). The price of the underlying Indian securities at the time of the GDR issue was Rs. 30/-. Therefore, the GDRs were issued at a discount over the price of the underlying Indian securities. At the time of purchase of GDRs itself, there was a clear arbitrage opportunity as the price i

Page 3 of 9  market was more illiquid as compared to the Indian market; and (ii) the price in the GDR market was lower than the price in the Indian market. The share prices of K Sera had also dropped from its peak level of about Rs. 50/- per share. Therefore, Sophia was looking at exiting the scrip of K Sera and therefore, the question of purchasing further shares of K Sera would not arise. vi. The allegation that the trades of Sophia matched with the trades of the other entities, which were buying in the market appears to be a mere coincidence in as much as it was only on the days, when the “buy clients” (as named in the order) were buying that Sophia was able to exit the scrip of KSera. It may probably be because of the reason that the “group/buy clients” were the main buyers in the market and would thus be counterparties to most of the sellers. vii. CAT Technologies came up with the GDR issue in July 2007. The proceeds of the GDR issue were to be, inter alia, invested in setting up offices in the United States as well as setting up subsidiaries in Dubai. The offering price of GDRs was US$ 1.50 (1 GDR is equivalent to 6 underlying shares). The price of the underlying Indian securities at the time of the GDR issue was Rs. 5.34. Sophia did not purchase any shares in the primary issue. The price of the shares substantially increased between June 2007 and December 2007 and rose above Rs. 18/- per share around December 2008/January 2009. This was one of the reasons, which made S

Page 4 of 9  Technologies formed only a minor portion of the total exposure of Sophia in the Indian market and the trading was also insignificant as compared to the total GDR exposure of Sophia. ix. The total trading by Sophia as compared to the total volume during the investigation period as well as the total purchases made by the “group” was insignificant and therefore, could not have influenced the price or the volume of the scrip. x. The observation of SEBI in paragraph 9 (unnumbered paragraph 4 at page 10) with regard to the allegations that the shares were acquired by the sub- accounts (which is alleged to include Sophia) post cancellation of GDRs does not apply to Sophia in as much as all the purchases by Sophia were made in the secondary GDR market and Sophia did not purchase any shares after the cancellation of GDRs by CAT Technologies. xi. Cals came up with the GDR issue in December 2007. The proceeds of the GDR issue were to be inter alia invested in the setting up of a refinery in India. The proposed venture of Cals showed a strong growth potential. The offering price of GDRs was US$ 25.38 (1 GDR is equivalent to 100 underlying shares). The price of the underlying Indian securities at the time of the GDR issue was Rs. 5.62. Therefore, the GDRs were issued at a substantial discount over the price of the underlying Indian securities. xii. Maars came up with the GDR issue in September 2007. The proceeds of the GDR issue were to be, inter alia, invested in the BPO Bus

Source: SecMarx — sebi:WTM/PS/ISD/41/MAY/2012. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.