The capital markets regulator has restrained Vijay Mallya from accessing the securities market, directly or indirectly, for three years.
In an order dated July 26, the Securities and Exchange Board of India (Sebi) said that Mallya is "further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, for a period of three (3) years from the date of this order.
It also restrained him associating with any listed company or proposed to be listed company, in any capacity, directly or indirectly, for three years.
The regulator was investigating whether he was indirectly trading in shares of his own group companies.
In the order, Sebi's Chief General Manager, Anitha Anoop wrote, "after considering the totality of the facts and material available, I, without any hesitation, find that the said acts of the Noticee (Mallya) in abusing the framework of the FII Regulations and dealing in securities of listed companies of his group of companies in India, indirectly, in a fraudulent manner and by employing a manipulative and deceptive artifice, thereby, indulging in purchase and sale of securities of Herbertsons / USL clearly was detrimental to the investors at large and was with an intention to deceit the market players".
How it was done
The regulator's investigations showed that Mallya had "devised a scheme" to trade the shares of Herbertson and United Spirits Limted (USL).
It involved opening multiple accounts in various names with UBS bank including the names of Bayside, Suncoast, Birchwood, etc. of which Mallya was the ultimate beneficial owner.
These three entities transferred a total of $6.15 mn to Venture New Holding Limited (VNHL) whose beneficial owner was again the Mallya. Then, VNHL transferred that money to Matterhorn Ventures for subscription to one of its share classes. . Matterhorn Ventures (SEBI Code 2000975) was found to be a registered sub-account of an FII – Matterhorn Advisory Singapore Pte Ltd. that operated during investigation period.
The money VNHL transferred to Matterhorn was immediately used to buy shares of domestically listed company Herbertson. The, after Herbertson merged with USL, Matterhorn Ventures was allotted 6,33,333 shares of USL in exchange to 9,50,000 shares of Herbertsons in the ratio of 2:3 on October 27, 2006.
Therefore, the order noted, "that the Noticee (Mallya) had indirectly used the sub-account of the FII i.e. Matterhorn Ventures as an investment vehicle to indirectly trade in the scrips of his own group companies in India i.e. Herbertsons and USL by way of funding the said FII."
(This is a developing story. Please check for updates.)
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