September 28, 2013 / 13:59 IST
Santosh Nair
Moneycontrol.com
The Securities and Exchange Board Wednesday lifted the ban on Mavi Investment Fund, imposed in September 2011 for allegedly being party to manipulation of Global Depository Receipts. The Sebi order said the charges against Mavi
could not be “decisively established”.
The regulator had charged Mavi of colluding with investment bank Pan Asia by subscribing to issues marketed by it, converting the GDRs into shares within a short time and then selling them back to entities controlled by Pan Asia and promoters of the companies. Mavi had bought GDRs of Maars Software and CAT Technologies.
To penalise Mavi, Sebi had to prove that the fund was connected to Arun Panchariya, founder of Pan Asia, and to the promoters of CAT Technologies and Maars Software. The regulator has been unable to prove that conclusively.
Sebi had also asked Mavi to name the beneficial owners of the fund. Mavi provided information about the investors in the fund, but did not provide “relevant details regarding the beneficial owners in respect of such investors.”
Mavi’s defense was that its investors were banks and financial institutions. “But since such institutional investors have a large number of investors who keep changing on a day-to-day basis, it was impossible to get information related to their beneficial owners.”
Sebi tried to source the details from the Financial Services Commission, Mauritius, where Mavi is registered. But the details provided by FSC were “substantially similar” to what Mavi had given to Sebi.
Mavi also gave an undertaking from its investors denying any linkage to Arun Panchariya or entities controlled by him.
In the absence of any other evidence, Sebi had no option but to accept the undertaking at face value.
All this goes to show that while it may be easy for Sebi to spot instances of promoters manipulating their stocks in collusion with a group of investors, the hard part is to prove the connection between them.
This is all the more difficult when key legs of the transaction take place outside India.
And the other tough part is to smoke out the beneficial owners from behind the veil of the stated investors in any fund.
By accepting Mavi’s contention that it was difficult for them to give the details of the beneficial owners, and lifting the ban, Sebi may have set a precedent for similar cases in future. Many FIIs who deal in participatory notes, an offshore derivatives instrument, have in the past stonewalled Sebi’s queries on the identity of the beneficial owners.
This aside, Sebi should have looked at the track record of Mavi before having been generous enough to give it the benefit of doubt. A vast majority of the
30-odd stocks in which Mavi holds stakes are illiquid mid and small caps. Barring a few, the fundamentals are hardly worth mentioning, and the stocks have been consistent underperformers.
That begs the question: Are these straightforward investment deals?
More importantly, Mavi’s name had also cropped up in media reports on the 2G spectrum scam probe. Mavi Investment Fund was one of the shareholders in Delphi Investments, which had brought stake in the controversial Swan Telecom.
Excerpts from a Firstpost.com article on the probe into the 2G scam.“The money trail in the 2G spectrum scam accidentally led the CBI to discover an amount of USD 31 million with Mavi. Like many companies in Mauritius, the official owner holds only 1% in Mavi. The CBI is interested in finding out who invested USD 4 million from Mavi to buy Reliance Telecom’s 9.9% stake in Swan Telecom.”
