Market regulator Securities and Exchange Board of India (SEBI) has barred fugitive businessman Vijay Mallya from the markets for three more years. He is also restrained from associating with any listed firm for three years for routing funds to the Indian securities market using overseas bank accounts with UBS AG.
An investigation conducted by SEBI covering January 2006 to March 2008 found that Mr Mallya used Matterhorn Ventures, a foreign institutional investor (FII), to secretly trade shares of his group companies -- Herbertsons Ltd and United Spirits Ltd (USL)—by routing funds through various overseas accounts.
In
an order last week (blob), Dr Anitha Anoop, chief general manager (CGM) of SEBI, says, "Mr Mallya devised a scheme to indirectly trade in the shares of his own group companies through layered transactions or fund flow using his overseas related companies through FII route in order to keep his identity masked and trade in the Indian securities market in defiance of the regulatory norms. Such acts of Mr Mallya are not only fraudulent and deceptive but are a threat to the integrity of the securities market. I further note that earlier, vide order dated 1 June 2018, the whole time member (WTM) of SEBI had debarred Mr Mallya from accessing the securities market and prohibited him from buying, selling or otherwise dealing in the securities in any manner for three years from the date of the order (i.e. from 1 June 2018 till 31 May 2021) for manipulative activities such as diversion of funds and/ or improper transactions in the scrip of USL in violation of the SEBI Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003 and the SEBI Act, 1992."
"Further, vide the same order, SEBI had also restrained Mr Mallya from holding a position as director or key managerial person of a listed company for a period of five years from the date of the said order (i.e. from 1 June 2018 till 31 March 2023). I further find that the said order was challenged before the securities appellate tribunal (SAT), which later was dismissed due to want of prosecution, which ultimately resulted in the attainment of finality of the directions issued by the WTM, SEBI in the 1 June 2018 order. Thus, I find that Mr Mallya has been indulging in manipulative and fraudulent activities and indulging in unfair trade practices while dealing in the securities market in violation of the securities laws," the SEBI order says.
The SEBI investigation revealed that Mr Mallya had opened various accounts with UBS in the name of different entities for which he was the beneficial owner. The entities used by him include: Sole Account UV (Highland Trading), Birthwood Hills Inc, Suncoast Valley Inc, Bayside Enterprises In and Venture New Holding Ltd (VNHL).
According to the market regulator, US$6.15mn (million) was received in the account of VNHL from Bayside, Birchside and Suncoast of which Mr Mallya was the beneficial owner. Of this amount, US$9.95mn was transferred to Matterhorn Ventures SPC for subscription to Zinalrothorn Share Class. Matterhorn Ventures, on 14 March 2006, transferred US$177,466 to the account of VNHL.
During the investigation period, Matterhorn was a SEBI-registered subaccount of a foreign institutional investor (FII) - Matterhorn Advisory Singapore Pte Ltd and had traded in the scrip of USL. Between 1 January 2006 and 31 December 2008, Matterhorn acquired 950,000 shares of Herbertsons through block deals.
The SEBI AO says, "From the fund flow in the bank accounts of related or associated entities of Mr Mallya and the examination during the investigation, I note that the said shares of Herbertsons were purchased by Matterhorn immediately on the very next day from the date the funds were transferred by VNHL to Matterhorn."
SEBI also perused email communication between Mr Mallya and Jaspreet Ahuja, an employee of UBS. "From the analysis of the email communication between Jaspreet Ahuja and Mr Mallya, it is noted that a net gain of $5.51mn was made by Mr Mallya from the purchase and sale of the shares of USL. Upon calculating the profits based on the purchase/ sale of shares of USL, I find that a profit of $5.69mn was made till the date of the said email communication, i.e. May 2007."
Dr Anoop from SEBI observed from the modus operandi adopted by Mr Mallya in this case that he used this financial route, i.e., the FII route, to trade in the Indian securities market by concealing his identity by way of layering the transactions in the names of various overseas registered entities and opening accounts in their names in UBS-UK Bank, even though he himself was the actual beneficial owner of each of these front entities.
"I find that as the investments through the FII route are only meant for persons or entities resident outside India to facilitate them to have exposure in the Indian securities market. From the scheme devised by Mr Mallya, it is clearly established that he has, by way of a design, abused the FII mechanism or route for investing his surplus funds kept abroad and had not revealed the same to the investors of these companies in India. I, therefore, find that Mr Mallya has glaringly resorted to making investments through the FII route by masking his identity under the garb of an FII i.e. Matterhorn Ventures, to the detriment of the interest of shareholders of Indian companies," the SEBI CGM says.
While barring Mr Mallya from the securities market and from associating himself with any listed company, SEBI ordered a freeze on the existing holding of securities, including holdings in the units of mutual funds (MF) of Mr Mallya for three years.
The Indian government has been attempting to extradite Mr Mallya from the United Kingdom to face fraud charges related to his now-defunct company, Kingfisher Airlines. He has been living in the UK since March 2016.
B. This is the outcome of am investigation conducted by SEBI covering January 2006 to March 2008!! And pronounced in 2024, after 16 years have passed!! Says a lot about SEBI's toothlessness and blindness to reality.