Two UBS bankers tried to create an offshore vehicle through which one of India’s most powerful businessmen could illegally invest in securities at home, according to evidence heard in a London tribunal.
Anil Ambani, whom bank executives described as a “mega-client”, was the ultimate owner behind a Mauritius-based vehicle called Pleuri, the tribunal heard. Pleuri was established with the specific objective of investing in Indian stocks, according to evidence presented by the UK’s financial regulator in a case against the former head of UBS’ London-based India desk. Indian nationals and companies are not permitted to invest in Indian securities through foreign institutional investors.
Details of the controversial structure have emerged in the case of Sachin Karpe, former head of the desk that managed Indian client portfolios at UBS’s wealth management division in London. Mr Karpe is challenging a £1.25m fine from the Financial Services Authority.
Mr Karpe and the other UBS banker, who cannot be named for legal reasons, have since left the Swiss bank. They allegedly misled UBS’s compliance team by maintaining that Pleuri was owned by a wealthy French couple. UBS ultimately refused to sanction the structure.
“The source of funds was plainly the Ambani family,” Jonathan Crow QC for the FSA told the tribunal on Tuesday.
“[Mr Ambani] asked for a transaction and Sachin Karpe enabled it,” said Michael Blair QC, Mr Karpe’s barrister. “There was no suggestion that the client himself was damaged. The most that can be thrown at [Mr Karpe’s] door was that he probably ought to have told the client that the bank would not deal with him because the transaction was not legal in India.” Mr Blair described the FSA’s case as “fat and splurgy”.
Mr Ambani, who is not represented at Mr Karpe’s tribunal hearing, has not been accused by the FSA of any wrongdoing. After the hearing, phone calls and emails to his spokesmen were not immediately returned.
The FSA alleges that in addition to trying to establish the offshore structure for Mr Ambani, Mr Karpe made unauthorised trades on other clients’ accounts. To hide losses, Mr Karpe allegedly arranged loans from other clients, falsely promising them that the loans would be guaranteed by UBS at an above-market rate.
Mr Karpe is not appearing at the tribunal and not contesting an FSA ban. He claims he did not know that the Pleuri structure would be illegal. Mr Karpe is arguing against the size of the fine, and maintains the FSA overreached its powers.
After an investigation by the FSA, UBS paid a £8m fine in 2009 for not preventing the unauthorised trades. It also paid $42m in compensation to clients. UBS is supporting the FSA’s case against Mr Karpe and two other ex-employees. Indian authorities have also launched their own investigations.
Mr Ambani entered into a settlement with the Securities and Exchange Board of India in January over allegations that his group misrepresented its end-of-year financial statements and violated overseas borrowing rules, without admitting any liability. As part of the Rs500m (£6.1m) settlement, the billionaire and his Reliance Infrastructure and Reliance Natural Resources companies cannot trade stocks on Indian exchanges through December 2012.
(Additional reporting by James Fontanella-Khan and Megan Murphy)
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