Goldman Sachs gets relief in derivatives case

Fri, May 16 12:45 AM

The Securities and Appellate Tribunal (SAT) has set aside the Securities and Exchange Board of India's order imposing a fine of Rs 1 crore on Goldman Sachs Investments and also asked the market regulator to pay up Rs 1 lakh to the investment firm as a refund of costs it incurred in the process. Earlier during the month, the SAT had set aside a Sebi order directing 10 entities, including Karvy Stock Broking, to disgorge (give up profits made through illegal acts) to about Rs 115 crore to be refunded to those affected in the Initial Public Offering scam during 2003-05, in which share meant to be allotted to retail investors were cornered by certain entities and later sold at huge profits.

The present case is regarding issuance of overseas derivative instruments (ODIs) by the Mauritius-based affiliate of Goldman Sachs in November 2002 with shares of Himachal Futuristic Communications as the underlying. These ODIs had changed hands and later reached Magnus Capital Corporation Limited, an overseas corporate body (OCB).

Later, it was only in August 2003 that Sebi made it mandatory for FIIs to declare that they had not issued any ODIs to OCBs. When contacted, a top Goldman Sachs official refused to comment on the issue, while the senior counsel who appeared on behalf of the FII could not be reached after repeated attempts.

Thus, SAT found that till such time the circular was issued, there was no restriction on FIIs and their sub-accounts in issuing ODIs to any of the entities that were barred by Sebi on a later date. The issuance in this case happened on in November 2002, while the circular came out only on August 2003.

Explaining its findings, SAT said, "The primary question that arises for our consideration in this appeal is whether Sebi could ask the FIIs to furnish an undertaking and #8230;we cannot appreciate the response of the adjudicating officer and cannot but deprecate his conduct." Further, calling the Sebi order very vague, SAT said that the allegations made in the Sebi order had not made them any wiser.

"We are unable to ascertain as to what is the precise charge which the adjudicating officer was wanting to make out," it said. Pinning the adjudicating officer for his twisted interpretations, SAT said, "the observations made by the adjudicating officer in para 11 of the impugned order the relevant part of which have been reproduced in para 4 of our order can only be described as absurd and betray his inability to understand the plain language of the proviso to Regulation 13(1).

In his eagerness to decide this issue against the appellant, he has attempted to rewrite the Regulation.".

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