Corruption reaches India's Biggest Company Reliance – Faces insider trading penalty of $350 million

Insider Trading is quite rampant in India particularly in mid cap and small cap companies where promoters frequently collude with market operators in rigging up stock prices.Most of the small IPOs that come are blatantly rigged in pump and dump schemes without the market regulator SEBI doing anything.There have been cases where some individuals and companies have been caught but have been left alone by a slap on the wrist.Wockhardt,Gujarat NRE Coke are some of the well known companies that have paid fines for insider trading.Recently the ADAG Group one of the biggest conglomerates in India owning the largest non banking financial institution,the 2nd largest telecom operators and one of the biggest EPC companies paid hefty fines.2 of the companies were banned from stock market operations by SEBI.

Now it has come to light that India’s biggest Company Reliance Industries indulged in insider trading to the tune of Rs 500 crores.This was done when the merger of its subsidiary Reliance Petroleum (RPL) with RIL was in process.This case has been dragging for a long while with RIL trying to settle for a pittance of Rs 10 crore which is around 2% of its Insider Trading Profits.India’s biggest private company is now on the hook for $350 million in potential penalties which is 3 times its profits.Note there has been little sense of outrage amongst the media pointing to the clout of these business groups.In fact the share price of RIL has also barely budged on the news despite the massive damage to the reputation if RIL is found guilty.Corruption in India has reached galactic proportions quite literally and nothing kind of surprises the country anymore.However as we saw in the recent scams,corporate governance can seriously damage your portfolio and lead to massive losses.

Ambanis seek ‘trading scam’ settlement

In what could be a coincidence, the two Ambani groups have separately approached SEBI for settlement of probes by the regulator in two separate cases of alleged violation of trading regulations.A settlement order is likely to be passed soon by Sebi in its probe related to Anil Ambani group firms, Reliance Infrastructure and erstwhile RNRL (which has now merged with Reliance Power), sources said.When contacted, an Anil Ambani group spokesperson declined to comment on the matter. On the other hand, elder brother Mukesh Ambani-led Reliance Industries group has approached Sebi for the third time for a settlement in the probe involving alleged violation of insider trading norms way back in 2007 in the dealings of shares of now-delisted subsidiary Reliance Petroleum (RPL).Queries made to an RIL spokesperson were unanswered.

RIL’s consent to the settlement appeal in this case has previously been turned down twice as Sebi did not agree to consent fee that was offered to settle the case, sources said. The last two appeals were made by RIL in August 2010 and November 2009. Sebi is said to have assessed the illegal gains from the alleged insider trading at over Rs 500 crore and had found the offered consent fee very less in those appeals.It could not be ascertained as how much Mukesh Ambani group offered to pay as consent fees in its latest appeal.Interestingly, the probes related to both the groups are regarding transactions that occurred way back in 2007 and investigations were initiated by the Sebi in both cases on the basis of anonymous complaints.

SEBI had begun quasi-judicial proceedings against RIL after it found violations in insider trading regulations pursuant to its investigation in the trading pattern in the RPL stock for the period between November 1-29, 2007.A subsidiary of RIL, RPL was merged with the parent in 2009 and subsequently delisted from the stock market.Sebi first issued show-cause notices to RIL in this matter in May 2009, while the initial probe began in early 2008.The other case involves a probe into certain market “dealings” by the two Anil Ambani group companies – Reliance Infrastructure and Reliance Natural Resources.In this case, R-Infra, RNRL, along with some top group executives including Chairman Anil Ambani, were issued notices several times in the second half of 2010 to appear for personal hearing before the SEBI.