Reliance Industries Barred From Trading Futures for a Year

(Bloomberg) -- Billionaire Mukesh Ambani’s Reliance Industries Ltd. has been barred from trading futures and options on India’s equity markets for a year after being found guilty of fraudulent activity by the market regulator.

The Securities and Exchange Board of India said Reliance, along with 12 unlisted trading houses it used, carried out unlawful transactions in shares of its former unit Reliance Petroleum Ltd. in late 2007. The regulator ordered the companies to return gains of 4.47 billion rupees ($68.3 million) plus interest, according to an order posted on its website Friday.

“This is not a normal case of price manipulation or volume manipulation,” SEBI’s whole time member G. Mahalingam said in the order. This is a unique strategy of “manipulating the settlement price in one market to gain across the volumes accumulated in the other market,” he wrote.

Reliance Industries said Friday it will appeal the judgement as it believes the trades in Reliance Petroleum shares were genuine and carried out in the interest of its shareholders.

“SEBI appears to have misconstrued the true nature of the transactions and imposed unjustifiable sanctions,” the Mumbai-based company said in an emailed statement.

Payment Deadline

The Securities and Exchange Board ordered Reliance Industries to pay the stipulated amount within 45 days with interest at 12 percent a year starting in November 2007. The total including interest is almost 10 billion rupees, according to Bloomberg calculations.

According to the order, Reliance’s board approved the sale of 5 percent of its stake in Reliance Petroleum in March 2007 in order to raise funds. In November, Reliance colluded with 12 small companies to take “substantial positions" in that month’s futures contract of Reliance Petroleum. Reliance had signed agreements with each of these entities and all the profits and losses were transferred to its own account, while they were paid a commission.

Reliance bought shares of its unit in the cash market between March and November 2007. It then took short positions in Reliance Petroleum futures in November before starting to sell the shares in the cash market. The objective of selling the shares was to push down the price and make additional profits from the short positions it had taken in the futures, the regulator said.

SEBI said it started investigating the matter following a jump in open interest of the November contracts of Reliance Petroleum futures. 

Reliance Industries merged with Reliance Petroleum in 2009. The petroleum entity was a listed subsidiary of the Ambani-owned firm and owned a 580,000 barrel-a-day refinery in a special economic zone at Jamnagar in the western Indian state of Gujarat, where the group has the world’s largest refining and petrochemicals complex. 

To contact the reporters on this story: Saket Sundria in Mumbai at ssundria@bloomberg.net, Siddharth Philip in Mumbai at sphilip3@bloomberg.net.

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Nicholas Reynolds, Kurt Schussler