THE SECURITIES and Exchange Board of India ( Sebi) has barred Cayman Islandsbased hedge fund Factorial Master Fund from stock markets for alleged insider trading in L& T Finance Holdings shares in mid- March. The fund is manged by Hong Kongbased Factorial Capital Management.
Sebi said that it may also investigate whether Credit Suisse had revealed to Factorial that the L& T Finance deal would be done at a discount. " At this stage, the channel of communication of the unpublished price sensitive information is not ascertainable," Sebi said in its case. " This aspect needs thorough investigation so as to come to a definite conclusion." Factorial issued a statement saying the allegations by Sebi are " without merit" and that it would fully cooperate with the probe.
Sebi has given the fund 21 days to respond to the notice. Sebi said that Factorial had netted a profit of around ` 20 crore in a transaction it called " aberrant and suspicious". " It is highly unlikely that one who does not have any exposure in the scrip will take such an aggressive short position," Sebi said adding, " unless it had some definite information about fall in price of the scrip in the near future." Lawyers said that the maximum penalty for an insider trading conviction is ` 25 crore or three times the profit made on fraudulent trades. Factorial returned 2.04 per cent in March, its highest monthly gain since December 2012, according to a newsletter obtained by Reuters. Equities and the financial sector contributed the most to the gains in March, the letter showed.
The accusations come after Sebi chairman U. K. Sinha stepped up the fight against insider trading and share manipulation hoping to stamp out rampant practices that were a key factor behind the exodus of $ 5.15 billion in retail investments from stock funds over the past five years.
Sebi has been criticised for weak enforcement of market violation and is trying to strengthen its insider trading but these amendments have yet to come into effect.
The drive against insider trading comes after Sebi was given enhanced investigation powers by Parliament last year.