Hedge Fund Barred In India For Insider Trading

Jun 6 2014 | 10:06am ET

India’s market regulator has accused hedge fund Factorial Capital Management of insider-trading securities of an Indian financial company earlier this year.

The Securities and Exchange Board of India said “it may prima facie be inferred that Factorial was in possession of the information about the likely floor price of the [offer for sale]” of L&T Finance Holdings shares “and such information was an unpublished price sensitive information.” L&T sold shares in mid-March.

SEBI barred Factorial from trading in Indian securities markets.

According to SEBI, Factorial built up a huge short position in L&T on March 13, covering those bets after L&T shares dropped 7.2% after the firm announced the share sale. The trade allegedly earned Factorial a roughly 200 million rupee (US$3.4 million) profit.

“It is highly unlikely that one who does not have any exposure in the scrip will take such an aggressive short position, unless it had some definite information about fall in price of the scrip in the near future,” SEBI alleged.

Factorial has denied the allegations, calling them “without merit” and pledging to “continue to fully cooperate.”

“A complete investigation will fully absolve” the hedge fund, it said.

Factorial has 21 days to respond to the interim charges.

SEBI said it reserved the right to expand its allegations to include Credit Suisse’s India unit, which served as broker for the L&T deal.

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