A Dubai-based businessman has received the biggest fine ever imposed by Britain's financial regulator as market watchdogs on both sides of the Atlantic bare their teeth.
The UK's Financial Services Authority (FSA) has fined Rameshkumar Goenka, an Indian businessman who operates in Dubai, a total of US$9.6 million (Dh35.2m) for market abuse after revealing a scheme to manipulate the share price of India's Reliance Industries on the London Stock Exchange.
The fine comes a day after Raj Rajaratnam, the former billionaire founder of the hedge fund Galleon Group, was fined $92.8m in a case brought by the US Securities and Exchange Commission. The penalty was the largest dealt to an individual for insider trading.
The FSA fined Mr Goenka, a private investor, following carefully timed trades which "artificially inflated" the price of Reliance's global depositary receipts, contracts that represent a number of ordinary shares on overseas markets.
The trades allowed him to avoid losses of $3.1m on a structured product linked to the company's share price, said Tracey McDermott, the acting director of enforcement and financial crime at the FSA.
"Goenka's structured product was an investment that would have made him a considerable profit had it been successful for him," she said.
"When he saw that it was not going to produce the desired result, Goenka manipulated the market to avoid a substantial loss," she said. "The impact of such behaviour goes far beyond one counter party," Ms McDermott added.
"Market confidence will suffer if participants cannot be satisfied that the price of quoted securities reflects the proper interplay of supply and demand."
Mr Goenka, 66, has been based in Dubai for 12 years and is chairman of Sorendon International, a company operating from the Jebel Ali Free Zone.
He "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 regulator said. "The timing of the substantial orders was intended to ensure market participants had insufficient time to respond before the closing price was determined."
Similar trades had been planned in April last year on shares in Gazprom, the Russian energy company, the FSA said in a 29-page report.
Mr Goenka did not carry out the trades after a live announcement concerning the company by Russia's prime minister, Vladimir Putin, foiled his plans at the 11th hour.
Mr Goenka received a 30 per cent discount on his fine after settling at an early stage of the FSA's investigation. The settlement was sought to "avoid lengthy and disruptive proceedings" that would have had a significant impact on his personal life, said Stephen Gentle, his lawyer and a partner at Kingsley Napley.
"His position is that twice he was hedging a position on which he was running a fairly significant risk, and that activity was carried out regularly by banks," Mr Gentle said. "He was reliant on advice from a lot of professionals and no one identified to him that what he was doing could be seen as unlawful," Mr Gentle added.
Regulators in the UAE have also been quick to thwart wrongdoing. Last month, the Dubai Financial Services Authority fined Arun Panchariya and his brother Satish, two Indian businessmen, a total of $24,000 for failing to disclose an investigation by India's market regulator. The investigation also centered on the listing of general depositary receipts of Indian companies on the Luxembourg Stock Exchange.
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