Revelations from an ongoing case against two bankers of UBS in a London tribunal could prove potentially damaging to billionaire industrialist Anil Ambani, chief of the Anil Dhirubhai Ambani Group (ADAG). Mr. Ambani has been named as the ultimate owner of a Mauritius-based investment fund called Pleuri that was set up to invest in Indian stocks. As per law, it is illegal for Indian citizens and companies to invest in Indian shares through foreign institutional investors.

The information emerged during legal tribunal proceedings against Sachin Karpe and another unnamed banker of Swiss bank, UBS. The proceedings were reported by The Financial Times in its edition of Wednesday.

The case is that the two bankers misled UBS's compliance team by stating that Pleuri was owned by a wealthy French couple. Mr. Karpe, who subsequently left UBS, was head of the India desk at UBS's wealth management division in London which services Indian clients.

“The source of funds […] was plainly the Ambani family,” Jonathan Crow QC for the Financial Services Authority, the market watchdog, is quoted as saying by Financial Times at the hearing. Mr. Karpe's barrister, Michael Blair QC, is quoted as saying that “[Mr. Ambani] asked for a transaction and Sachin Karpe enabled it.”

SEBI consent order

In January this year, the Securities and Exchange Board of India (SEBI) had passed a consent order on a case pending against two ADAG companies, Reliance Infrastructure Ltd and Reliance Natural Resources Ltd., along with Mr Anil Ambani and four group executives, Mr. Satish Seth, Mr. S C Gupta, Mr Lalit Jalan and Mr. J. P. Chalasani.

The allegation

The allegation was that the group companies had invested funds raised abroad through external commercial borrowings (ECB) and Foreign Currency Convertible Bonds (FCCB) in the Indian market, specifically in the shares of Reliance Communications Ltd., through investment vehicles based abroad.

SEBI had issued show-cause notices in June 2010 to the group and its executives for violations of various securities trading laws due to the above transactions.

The two companies and the executives promptly approached SEBI to settle the proceedings through a consent order. SEBI considered the case and agreed to a consent order with a fine of Rs.25 crore each against the two companies and prohibiting them from investing in the stock market until December 2012. The ban on the individuals was until December 2011.

The two companies and the executives agreed to the terms without admitting or denying the charges.

Interestingly, the consent order clearly states that SEBI can reopen proceedings if any representation made by the applicants in this consent proceeding is subsequently discovered to be untrue.

It is not clear whether the latest revelation from the London tribunal will fall under the above. SEBI did not disclose details of the proceedings of its discussions with the executives.

ADAG reaction

When reached for the company's reaction to the developments, a spokesperson said: “The matter is nearly 5 years old, and has already been closed with Indian regulators under the consent order framework in January 2011.

The matter relates to regulatory action in the UK against former employees of a foreign bank, for unauthorised trades made by them and misuse of a large number of client accounts.

The bank has already accepted the weaknesses in its internal systems and processes, and settled the matter with the U.K. regulators by payment of a fine. There are no charges levelled against us by the UK regulators in these proceedings. As such, we are not party to these proceedings, and not represented therein.”

“All aspects reported by the media today, including the ownership and/or beneficial status of certain entities investing in India, were considered by the Indian regulators, while passing the consent order in January 2011.”

Keywords: Anil AmbaniADAG

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