Market regulator Sebi's probe into round tripping of funds via offshore accounts in Mauritius, Switzerland, London by Indian billionaires using Swiss Bank UBS, has exposed the regulator's double face. Simple facts of the case are that Unitech's Sanjay Chandra, Anil Ambani and his key associates, absconding liquor baron Vijay Mallya, Jai Shroff of United Phosphorus and a steel and oil businessman were investigated by Sebi for routing their company's funds from India worth millions of dollars to offshore account of UBS that operated Protected Cell Company (PCC) and issued participatory notes (Pnotes), the obscure offshore derivative instruments, in the name of Pluri between 2006 to 2010. UBS invested these funds into the companies of the respective billionaires, which effectively pushed up their share price. But 15 years after the probe, Sebi says it was all much ado about nothing. Just last week, the regulator gave clean shit to Chandra and entities linked to him.
Sebi had started its probe against Anil Ambani and his associates around 15 years ago in 2009. But a show cause notice to Sanjay Chandra in the same case was issued only last year in May 2023 and within a year he was given a clean chit. Even 15 years after the case came to light, there are no details out in the public about what happened to the probe against Mallya and Shroff. But Ambani and his associates were hounded back in 2009-2010, until they settled the case with the regulator so that it does not pursue it any further. Little did Ambani know that Sebi lacked clear evidence?
How Sebi Got Information On The Billionaires?
Sachin Karpe, the former head of UBS Asia II desk, who was held in awe and trusted by senior management to such an extent that could re-engineer the bank’s controls, was exposed by a whistleblower. The UK market regulator FSA was informed by the whistleblower about the offshore accounts and Kapre's dealings. Whistleblower told the UK regulator that Asia II Desk had set-up a vehicle (Pluri PCC) for assisting clients to circumvent Sebi rules on foreign investments in India. FSA first shared details against the offshore accounts of Anil Ambani and entities linked to him with Sebi.
SEBI started its probe into the matter when C B Bhave was the chairman and the investigations were mainly handled by then Executive Directors K N Vaidyanathan and Pradnya Saravade - both had also visited London to gather evidence. Little later, another SEBI official V S Sundaresan was also sent to London for more information. The Enforcement Directorate (ED) also showed interest in the probe against Ambani. But when UK Sinha replaced Bhave and the file on UBS Pluri account probe reached then Finance Minister P Chidambaram, the investigations slowed down and were virtually halted. After Ambani's settlement with SEBI, the trail of the further information that was shared by FSA via emails with SEBI officials on Mallya, Chandra and Shroff, went cold.
After the Narendra Modi led BJP government came to power in 2014, a committee on Black Money was set up under former Supreme Court Judge MB Shah. UK Sinha was called or met Justice MB Shah on SEBI's role and probe on the black money matter involving UBS accounts probe. Later, Sinha told the press that tackling of black money was not SEBI's job and it was responsible only for market manipulation - somehow a convoluted assumption since agencies and regulators are supposed to work in unison and sharing of information and cases is a basic requirement to keep the state machinery well oiled and functioning. In the spirit of fighting black money and fighting corruption an important regulator like SEBI cannot be aloof.
Between 2014 and 2023, the trail on UBS Pluri accounts went cold and the matter remained buried until around some 12-18 months ago, when SEBI received further complaints, a show cause notice was issued to Chandra in 2023. The file on UBS Pluri accounts, based on which notes were prepared by SEBI on all the billionaire businessmen, is held up somewhere in the transit and nobody knows where it went from Chidambaram's desk. There is scant idea to the incumbent Modi government on whether the SEBI officials have preserved or deleted the emails they received from the FSA that had shared vital information in the offshore accounts case, the sources said. But definitely records and traces of the case are still present in SEBI, ED and the Finance Ministry since some time in 2023, SEBI managed to retrieve information it had received from FSA in the UBS offshore accounts matter, the sources said.
As per details received by Sebi and its investigations, the billionaires had transferred funds from their companies to offshore accounts under the guise of subscribing to various financial instruments or investments in subsidiaries outside India. These funds were routed to UBS, which via Pnotes, reinvested the money in the shares of companies owned by respective billionaires. But was there any clear evidence of it?
Chandra's Case
Exclusive details of Sebi's UBS file and investigations with BW show that the regulator's investigations had revealed that Unitech had one account with UBS in the name of Unitech Corporate Parks with a/c no: 206-38329 (Annexure 3 in SEBI's UBS file) and Sanjay and Ajay Chandrad in the name of Atlantic and Chocolate (Annexure 4, page no. 232).
As per Annexure 7, page no. 325 and Annexure 8, 235, SEBI's UBS file also noted emails which said $ 4 million to be transferred to Strepera Holdings Ltd., which was to subscribe in the preferential allotment of Orissa Sponge. SEBI probe revealed that from the corporate announcement made by Orissa Sponge Iron, it was noticed that 10 lakh preferential shares were alloted to Strepera Holdings.
The SEBI file showed that Cell G of Pluri was related to Unitech with investments of $ 4 million (Annexure 6, page 182) and Cell F (Annexure 5, page 159) that was linked to Chandra had $ 3.1 million. Unitech Corporate Parks with UBS account no. 206-383429 was mentioned in Annexure 3 of the SEBI file.
SEBI had alleged that Sanjay Chandra and Ajay Chandra transferred the funds from Unitech to its overseas subsidiary viz Unitech Overseas Ltd, and then these funds were transferred among the other foreign subsidiaries of Unitech, including the connected/ related entity viz UCP (Unitech Corporate Park) its subsidiaries using UBS accounts in different countries. These funds were ultimately routed from UBS accounts to Pluri, which were then finally used to buy the shares of Unitech, directly or indirectly, through funds/FIIs like Sophia Growth Fund and Deutsche Bank Mauritius. Sebi also found that Unitech Overseas, a foreign subsidiary of Unitech, was maintaining an account with UBS, Zurich. Pluri (Pluri Emerging Companies PCC) was incorporated in Mauritius as a private limited company by shares, and is a protected cell company.
But SEBI order now says it found nothing. "Neither there is any evidence, documents or detail on record to establish that the fund transferred by Unitech to Unitech Overseas Ltd was only subsequently transferred to Pluri nor there is any material/facts/information whatsoever brought on record in the IR (investigative report) to show that the source of investment by Pluri w.r.t. its investment in the scrip of Unitech, directly or indirectly, is linked to Unitech. Further, there is no detail or evidence on record with regards to fund transactions from Unitech/its subsidiaries to Unitech Corporate Park or its subsidiaries, as alleged in the show cause notice."
Also, Sebi says it did not find evidence that Chandra had dealt in his company shares indirectly.
"...do not find sufficient corroborative evidence, either in the IR or in the material made available along with the IR to establish the allegation that noticees (Chandra) had dealt in securities of Unitech indirectly in a fraudulent manner and employed manipulative and deceptive practices in connections with the purchase and sale of securities of Unitech or have misrepresented the truth and concealed a material fact known to them of buying the shares of Unitech fraudulently."
Then why did Sebi make a Make a mountain out of a molehill back in 2010?
Vijay Mallya's UBS Accounts
Exclusive details of SEBI's UBS file ((Annexure 1, Page no. 107) and investigations with BW show, he had a account with UBS named Highland Trading no: 364567, FG Personal Account 369939, Birchwood Hillis no: 389458 PIC, Suncoast Valley 389459 PIC, Bayside Inn 389460 PIC, Venture New Holding 138154.
As per SEBI, Mallya made a profit of $5.51 million from purchase of 6.33 lakh shares and sale of 4.08 lakh shares of United Spirits in May 2007 (Annexure 2, email dated 24/5/2007... page no. 224).
United Phosphorus And Jai Shroff's UBS Accounts
Exclusive details of Sebi's UBS file and investigations with BW show Jai Shroff and V R Shroff had one account with UBS in the name of Edgware Alliance Inc. with account no. 206383240 (Annexure 9, page no. 105).
From Jai Shroff's London Account 415065 CHF 2 million internal transfer was made in November 2006 (Annexure 10, page no 758). In the said account of Jai Shroff, SEBI found receipt of CHF 3.5 lakh from Ergine Services Corp on 4/1/2008 (Annexure 10, page 758).
SEBI's investigations also reveal that he preferred coming to London and did not prefer any faxes from UBS in India (Annexure 10. page no. 758) and Cell F of Pluri was related to United Phosphorus (Annexure 11, page no 159).
Anil Ambani's Case
Same UBS Pluri account that is probed by SEBI in Chandra case also was found to be linked to Anil Ambani by SEBI. Anil Ambani and his group executives were summoned by SEBI on September 3, 2010 after they did not respond to a show cause notice with regard to the UBS Pluri related case and transactions by offshore entities in the shares of Reliance Natural Resources (RNRL) and Reliance Infrastructure.
In 2009, SEBI and government agencies had investigated dealings by Pluri Emerging Companies, which purchased Pnotes with RNRL and Reliance Infra as the underlying. At that point, the Enforcement Directorate (ED) was also probing Pluri for a series of allegedly fraudulent transactions, involving the siphoning of funds from the UBS London branch accounts of two ADAG firms, and the use of these funds to buy shares in India. Sebi has also pulled up SocGen, the French financial services group, and Barclays, a British bank, in connection with its dealings with Pluri. Both have been barred from issuing fresh PNs because their records were not in order. SEBI had found that the money in the UBS London accounts were foreign loans, or external commercial borrowings, by ADAG firms.
Anil Ambani, his two companies and associates were subjected to payment of Rs 50 crore for a settlement of the case, the highest amount that SEBI had received in any settlement matter then. Also, they were debarred from dealing in the stock markets for a year, which was more significant than the settlement amount. Sanjay Chandra just got a clean chit and no details of what SEBI did or was doing against Mallya and Shroff is known yet. A steel and oil businessman, who has businesses in India, Russia and Europe remained untouched by the probe.
BW Reporters
The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free.
Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.
