sebi:WTM/PS/ISD/64/01/2012

SEBI · SEBI · 2011-10-10 · 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 vide the ad interim ex-parte Order dated September 21, 2011 against European American Investment Bank AG confirmed

Provisions invoked

• s. 19

Regulations

• Reg. 7
• Reg. 13A
• Reg. 7A
• Reg. 13A(1)

Parties

• European American Investment Bank AG (Euram Bank)

Holding

SEBI confirmed the ad interim ex-parte directions dated September 21, 2011 against Euram Bank in the matter of market manipulation using GDR issues. The interim directions were not vacated at this stage as the investigation was not yet complete.

Full text

Page 2 of 6 market transactions in certain scrips, namely, IKF Technologies Limited, Avon Corporation Limited, CAT Technologies Limited, Asahi Infrastructure Limited, K Sera Sera Limited and Maars Software International Limited and a revelation in the preliminary examination that Foreign Institutional Investors (hereinafter referred to as FIIs), namely, India Focus Cardinal Fund (India Focus), KII Limited (KII), Mavi Investment Fund (Mavi) and Sophia Growth (Sophia), were converting the Global Depository Receipts (hereinafter referred to as GDRs) underlying the shares of the aforesaid companies held by them into equity shares to sell in the Indian markets and that most cancellations happened within a short period of time of their issue and on noticing that a few entities were repeatedly appearing as counterparties to the 33% to 75% of those shares sold by FIIs in the scrips, had conducted an examination into the same. The prima facie findings of the said examination pointed out to the various aspects of the GDR issues like the large size of the issue vis-à-vis the existing size of the issuing company, unimpressive financials of the company, common initial investors, high proportion of cancellation of GDRs repeatedly by a set of FII/Sub-Accounts, sale in Indian stock exchanges and a major portion being bought by a constant group of clients, the trading amongst the said clients and subsequent off-loading by them. The

Page 3 of 6 suggest that the only purpose for Euram Bank to get registered as an FII was to get India Focus registered as a sub account. ii. The registration of India Focus as a sub-account was granted by SEBI pursuant to a thorough review and application of SEBI’s processes. The trading by the entities would have been subject to the same scrutiny and with the same caution by SEBI. The allegation in the Order that Euram Bank and India Focus having ‘created the façade’ of registration as FII and sub-account is misplaced. iii. In any event that the decision to undertake trading in Indian securities is a commercial

Page 4 of 6 x. Further, with regards to the alleged violation of Clauses 8 and 10 of the Code of Conduct, Euram Bank, on account of not having any dealing in Indian securities, cannot be alleged to have violated the same. Further, it is submitted that there is nothing in the Order that alleges or demonstrated any act or omission by Euram Bank that could be alleged to be manipulative or fraudulent. xi. The fact that proceeds of payments were deposited in the banking system of Euram Bank cannot lead to any conclusion. Further, Mr. Arun Pancharia has no connection or influence over Euram Bank. The only connection with Mr. Pancharia on account of Pan Asia’s minority shareholding in Euram Bank Asia. However, Euram Bank Asia has had no role to play in relation to the facts of the present case. Euram Bank has no connection or links with any of the other entities named in the ‘Group’ in Order. xii. Euram Bank has procured an agreement with Pan Asia to exercise Euram Bank’s right to acquire shares of Pan Asia in Euram Bank Asia. Euram Bank will require approvals from the Dubai International Financial Center (DFSA) and the Austrian regulator for the agreement to be concluded. However, the DFSA has withheld its approval on account of the pendency of the proceedings pursuant to the Order. Such a situation is undesirable especially since there is no wrongdoing attributed to Euram Bank even by the Order. Further, the pendency of the proceedings pursuant to the Order is also preventing the

Source: SecMarx — sebi:WTM/PS/ISD/64/01/2012. 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.