Sebi dismisses allegations of stock manipulation against Unitech's former promoters

The regulator said that there was no sufficient evidence that the brothers dealt in the scrip in a fraudulent or manipulative manner

The market regulator has dismissed allegations against former promoters of realty major Unitech of routing funds through offshore bank accounts to manipulate the company's stock price.

In an order dated June 21, the Securities and Exchange Board of India (Sebi) disposed of the proceedings initiated against Sanjay Chandra and Ajay Chandra.

The brothers are under investigation by the Economic Offences Wing (EOW) for cheating, breach of trust and money laundering.

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In the Sebi order, the adjudicating officer noted: "I do not find sufficient corroborative evidence, either in the IR (investigation report) or in the material made available along with the IR to establish the allegation that Noticees have dealt in securities of Unitech indirectly in a fraudulent manner and employed manipulative and deceptive practices in connections with the purchase and sale of securities of Unitech or have misrepresented the truth and concealed a material fact known to them of buying the shares of Unitech fraudulently."

Background
The regulator had started a suo moto investigation into whether, between April 1, 2006, and March 31, 2008, there was any routing of funds to Indian Securities Market by Sanjay Chandra and Ajay Chandra hrough the bank accounts with UBS AG.

Initial investigations had shown that Sanjay and Ajay were asking employees of UBS were discussing transfer of funds to Pluri Emerging Companies PCC (Cell G) Fund through the UBS bank accounts of United Corporate Parks (UCP).

United is connected to UCP through various ways: Unitech had a shareholding of 4.52 percent in UCP through Unitech's subsidiary Nectrus, Ajay Chandra was a non-executive director in UCP, Unitech had a joint venture with UCP, and Sanjay and Ajay held 0.22 percent stake in UCP through a company called Fairway Advisory Services.

The allegation was that Unitech transferred money to its overseas subsidiary United Overseas Ltd (UOL), that these funds were transferred among foreign subsidiaries of Unitech including the entities connected through UCPs, and then these funds were routed to Pluri and were used to buy shares of Unitech.

As the Sebi order noted, the investigation failed to bring out the end use of the money--$ 8 million--transferred by Unitech to UOL.

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The order stated, "I note that the inference drawn in the investigation that Noticees have regularly transferred funds to foreign subsidiaries for the purpose of routing of funds cannot be justified as the said inference has been simply drawn based on only one transaction of USD 8 mn between Unitech and Unitech Overseas Limited and the end use of the same has also not been traced in absence of the details of bank transactions or without any other supporting documentary evidence on the same."