CHIEF GENERAL MANAGER
INVESTIGATION DEPARTMENT
IVD/ID-3/PKB/PB/MGL/SCN/ 101601 /2007
August 17, 2007
1. Mascon Global Ltd.
Padma Complex,
320 Anna Salai,
Chennai – 600 035.
2. Mascon Information Technologies Ltd.
1515 – E, Wood Field Road,
Suite 450, Schaumburg IL.,
USA 60173.
Dear Sir/ Madam,
Sub:- Show Cause Notice under Section 11(4)(b) & 11B of Securities and Exchange Board of India Act, 1992, in the case of Mascon Global Ltd.
1.0 The Securities and Exchange Board of India (hereinafter referred to as SEBI) has conducted an investigation into the alleged price manipulation in the scrip of Mascon Global Ltd. (hereinafter termed as ‘MGL’), formerly known as Assan Leasing and Finance Ltd., for the period August 1999 to March 2000 and December 2000 to March 2001.
2.0 The findings of the investigation as far as it relate to you, (i) Mascon Global Ltd. and (ii) Mascon Information Technology Ltd. are as follows:
2.1 During the period December 2000 to March 2001 it is observed that the scrip of MGL had fallen from Rs. 420 to a low of Rs. 85 (The overall market started falling only during the last two weeks of March). The price volume data is enclosed as Annexure ‘A’. Annexure ‘B’ shows the graphical representation of the price movement of MGL vis-a- vis sensex movement. Thus there was depression of share price in the scrip of MGL. This was also the period when artificial volumes were generated in the scrip as prior to December 2000 the scrip of MGL was traded in thin volumes. The sudden surge in volumes on or after December 2000 was largely on account of the off-loading of shares by Mascon Information Technologies Ltd. (hereinafter referred to as ‘MITL’) to various outfits namely Panther Investrade Ltd., Panther Fincap and Management Services Ltd., Classic Credit Ltd., Saimangal Invest Trade Ltd. and Luminant Investments Pvt. Ltd. and Overseas Corporate Bodies (OCB’s) namely, Kensington Investments Ltd., European Investments Ltd., Wakefield Holdings Ltd. and Brentfield Holdings Ltd., controlled by Shri Ketan Parekh, who was the mastermind behind creation of artificial volume and price in the scrip that took place during the period December 2000 to March 2001. When queried on the fact that the promoter group company had off-loaded substantial chunk of shares, the reply given by the representative of the company was that since the shares were mostly held in demat form it was difficult for them to monitor the off-loading by any entity. While it is true with any other entity, the same argument cannot be ascribed particularly when related/ connected/ associated entities like MITL and CSI Technologies Ltd. had off-loaded substantial chunk of shares in the market (as MITL was the promoter group company of MGL). Any off-loading of shares by the promoter group company should have alerted the management of MGL especially when MGL is a closely held company and also the fact that the scrip of MGL was traded in thin volumes prior to December 2000. Moreover, Dr Nandu Thondavadi was member in the board of MGL and MITL. The timing of the sale of the shares is also important to note as it was only after these transactions of MITL and CSI Technologies Ltd. that huge volumes were recorded in the scrip, which were conveniently used by the entities related/ connected/ associated to Shri Ketan Parekh to indulge in rampant manipulation of price and volume of the scrip. It cannot be a mere coincidence that the promoter group entities sold large quantities of shares held by them to entities belonging to the Ketan Parekh group by way of off-market transfers and that too during December 2000.
2.2 As noted earlier the scrip of MGL was highly illiquid prior to December 2000. Analysis of volume in the scrip of MGL prior to December 2000 indicated that the scrip was traded with thin volumes. MGL was a closely held company and the floating stock in the scrip was thin. This can easily be seen from the manner in which the scrip price rose to phenomenal levels during the period August 1999 to March 2000. Even after March 2000 upto November 2000, the scrip was trading with thin volumes. It was only after December 2000 that huge volumes in the scrip were noticed and the Ketan Parekh related entities and OCB’s namely, Panther Investrade Ltd., Panther Fincap and Management Services Ltd., Classic Credit Ltd., Saimangal Invest Trade Ltd., Luminant Investments Pvt. Ltd., Kensington Investments Ltd., European Investments Ltd., Wakefield Holdings Ltd. and Brentfield Holdings Ltd. were delivering huge quantities of shares of MGL in the market (mostly 5 lakhs and above and sometimes even delivering 10 lakh shares and more etc). It was also observed that during this period only KP related clients and the OCB’s were mainly active in the scrip. It was therefore clear that such huge volumes in the scrip could be due to some entities (including the promoter group) off-loading substantial chunk of shares to the clients mentioned above either directly or indirectly. When the movements of shares from the delivering clients were back tracked it was observed that huge quantities of shares were off-loaded by way of off market transfers from the account of:
A) MITL – Promoter Company of MGL;
B) CSI Technologies Ltd – which was allotted substantial quantities of shares in a preferential allotment of MGL and this entity shared the same address as that of MGL (as evident from the DP transaction statements), implying strong connections of CSI Technologies Ltd. with the management of MGL. Copy of the demat account statement of CSI Technologies Ltd. is enclosed as Annexure C.
2.3 CSI Technologies Ltd. was allotted 7,20,000 shares of MGL in a preferential allotment made by the company in April 2000 (date of allotment April 04, 2000). Subsequently, their holdings had increased due to a bonus announcement made by MGL. Although, CSI Technologies Ltd. is a Maurititus based OCB (as submitted by MGL), it was observed that they had furnished the registered office address of MGL as their contact address in India. MGL could not give a valid explanation in this regard. Furthermore, the address of MGL was also mentioned by CSI Technologies Ltd. in their demat account opening form.
2.4 The movement of shares from the promoter company of MGL and from CSI Technologies to various entities/ clients OCB’s etc is explained as under:
a) It was observed that on December 01, 2000, CSI Technologies Ltd. sold 20,00,000 shares of MGL to Kensington Investments Ltd. Another 5 lakh shares were sold on December 07, 2000, to the account of Kensington Investments Ltd. Both the transactions were done off-market. The above mentioned transactions enabled Kensington Investments Ltd. to sell the shares (in large volumes) through Credit Swiss First Boston (CSFB). It was observed that on December 04, 2000 and December 11, 2000, Kensington Investments Ltd. sold through CSFB in the market 15 lakh shares and 5 lakh shares of MGL, respectively. This transaction also resulted in large quantum of shares of MGL coming into the market initially. MGL, vide their letter dated October 23, 2002 enclosed a letter of CSI Technologies, which mentioned that CSI Technologies had sold in two lots shares of MGL (2 million shares and 0.5 million shares) as spot transactions to Kensington Investments Ltd. CSI Technologies Ltd. merely stated that this was a commercial decision taken by them to exit from this stock. The payment details as regards the two sale transaction were however not provided by CSI Technologies Ltd. It appears that payments in respect of these transactions were not received by CSI Technologies Ltd. thereby violating the spot transaction rules under Securities Contract (Regulation) Act, 1956.
b) The examination of the DP statement of MITL maintained with Karvy Consultants – Client ID 11451458 (MITL was earlier known as MarteK Holdings Inc, USA) (Copy of the demat account statement enclosed as Annexure D) brought out that on January 02, 2001, a pledge for 20,00,000 shares of MGL was made in favour of Himachal Futuristic Corp Ltd. (HFCL). On February 23, 2001, the aforementioned pledge was invoked and 20,00,000 shares of MGL were transferred (off-market) from the account of MITL to the account of HFCL (DP account No. 10416000 maintained by HFCL with IDBI bank Ltd.). Neither MITL nor MGL submitted details of payment (i.e., consideration received from HFCL in respect of the said transaction) despite several reminders. The examination of the DP account statement of HFCL revealed that on the same day i.e, on February 23, 2001, when the pledge was invoked, HFCL sold these shares through Classic Share and Stock Broking Ltd. (a BSE member and entity belonging to Shri Ketan Parekh). The DP statement of Classic Share and Stock Broking Ltd. (pool account CMBP ID IN557091 maintained with Indsec Share and Stock Borkers Ltd.) revealed that on February 23, 2001, Classic Share and Stock Broking Ltd. sold 20 lakh shares of MGL to Luminant Investments Ltd. by way of an off-market deal. The DP account statement of Luminant Investments Ltd. (ID 10000641 maintained with Indsec) revealed that Luminant Investments Ltd. had sold 20 lakh shares of MGL through CSFB in the market. Luminant Investments Ltd., as already brought out, is an entity related/ connected/ associated to Shri Ketan Parekh.
c) Examination of the DP statement of MITL with Karvy Consultants - Client ID 11451458, revealed that 10 lakh shares of MGL were sold by MITL by way of an off-market transaction on January 30, 2001, and the purchaser was Wakefield Holdings Ltd. (status - OCB related/ connected/ associated to Shri Ketan Parekh). The trading records further established that Wakefield Holdings Ltd. sold these shares in the market through CSFB and Triumph securities Ltd. on various dates. Wakefield Holdings Ltd. maintained their DP account with Global Trust Bank (client ID 10184628). The representatives of MGL failed to furnish the payment received status as regards their sale of 10 lakh shares of MGL to Wakefield Holdings Ltd. Although, repeated reminders were issued to MGL in this regard no reply was received.
d) Examination of the DP statement of MITL with Karvy Consultants – client ID 11451458 revealed that on January 31, 2001, MITL sold 2,50,000 shares of MGL by way of an off-market deal to Brentfield Holdings Ltd. (an OCB related/ connected/ associated to Shri Ketan Parikh). Brentfield Holdings Ltd. sold these shares through CSFB in the market. In this case also MGL could not provide any proof/ evidence regarding payment received by MITL from Brentfield Holdings Ltd. as regards sale of the above shares.
e) Examination of the DP statement of MITL maintained with Karvy Consultants revealed that on February 01, 2001, MITL sold 7,50,000 shares of MGL by way of an off-market transaction to Brentfield Holdings Ltd. (a Ketan Parekh related/ connected/ associated OCB). These shares were sold in the market by Brentfield Holdings Ltd. through CSFB. MGL could not produce any evidence/ proof as regards to sale consideration received from Brentfield in respect of the transaction.
2.5 In the above manner it was observed that the promoter group company of MGL itself off-loaded roughly 40 lakh shares of MGL to various entities/ OCB’s controlled by Ketan Parikh, which is important to note as this was the reason being substantial volumes witnessed in the scrip during the concerned period. As already brought out, the scrip of MGL was illiquid prior to December 2000 and the sudden surge in the volumes was entirely on account of off-loading by the promoter group entities of MGL as explained above. It appeared that the promoter group company of MGL aided and abetted the OCB’s and entities belonging to Shri Ketan Parekh in a big way as such large quantities of shares had come into the market only due to the off-loading by MITL and CSI Technologies Ltd. as brought out above. The timing of such off-loading and also the fact that no consideration was received in respect of such sales clearly goes to prove the role of the management in aiding and abetting the Ketan Parikh group/ OCB’s. Despite several reminders being issued, MGL could not substantiate the genuineness of the above transactions by showing proof of payments received by them/ promoter group entity. This only indicates that promoter group of MGL had colluded with the Ketan Parikh related/ connected/ associated entities and the OCB’s. No other reason could be drawn behind sudden off-loading of substantial chunk of shares to the Ketan Parekh controlled clients/ entities and that too after December 2000 (period when the scrip witnessed abnormal volumes and Ketan parekh controlled clients and OCB’s were only active in the scrip).
2.6 MITL (formerly known as Martek Holdings Inc- USA) is a promoter group company of MGL. The above entity had made an open offer to acquire 9,60,000 shares of MGL and the open offer was open for subscription during August 1999. Pursuant to the open offer, Martek Holdings Inc. was shown as the main promoter of MGL and the registered office of MGL shifted from New Delhi to Chennai. MITL was incorporated in the state of Delaware, USA in the year 1995. Dr Nandu Thondavadi the main promoter of MITL is also the main promoter of MGL, along with MITL. Pursuant to the open offer, Martek Holdings Inc held approx 58.83% of the equity capital of MGL along with Dr Nandu Thondavadi who was holding around 25 % stake in MGL. As mentioned in the above paragraphs, the sudden spurt in the volumes of MGL during the period December 2000 to March 2001 was significantly contributed by the off-loading by MITL to the Ketan Parikh controlled entities/ OCB’s. Investigations brought out that the above entities had off-loaded roughly 40 lakh shares of MGL on or after December 2000, which resulted in generation of artificial volumes recorded in the scrip after December 2000.
2.7 Submission by Mascon Global Ltd – MGL
Statement of Shri S. Shivakumar, Company Secretary of MGL was recorded on January 06, 2003 and the same is placed as Annexure E. This was followed by letters received from MGL furnishing information/ details sought. When the details of payment received by MITL were sought as regards sale of above shares of MGL, vide their letter dated February 4, 2003, submitted the following:
a) As regards the pledge of 20 lakh shares with HFCL it was submitted that the same was pledged with HFCL as a security for a loan taken by Tandem Investments Pvt. Ltd. sometime during September 2000. The pledge by MITL to HFCL was only as a security and the pledge was entered with HFCL on January 02, 2001. HFCL did not serve any notice to MITL or Tandem Investments Pvt. Ltd. before invoking the pledge on February 23, 2001. Both MGL and MITL failed to reply as regards payment received in respect of the pledge transaction. MGL merely enclosed letters from MITL stating that they had sold the shares to HFCL, Brentfield and Wakefield. The details of payments received, if any in respect of the above transactions by the sellers were not provided.
b) Letter of MITL mentions that they had not dealt with any broking house (either directly/ or indirectly) other than the OCB’s viz. Brentfield and Wakefield in connection with the sale of shares. It was also brought out in the letter of MITL that they were not aware of the linkages of the OCB’s with the Ketan Parekh outfits or with Shri Ketan Parekh himself.
c) The reply from MGL or MITL was silent on whether or not MITL had received payments from Brentfield/ Wakefield as regards sale of shares to these entities.
d) The reply was also silent on connections of Tandem Investments Pvt. Ltd. with MITL and/ or MGL. In case the shares were pledged with HFCL for and on behalf of Tandem Investment Pvt. Ltd., MGL should have given proof/ documents to show their connections with Tandem Investment Pvt. Ltd. The same was not provided. It appears that MGL has coined a false story in this regard. No legal action appears to have been initiated by MGL either against HFCL or Classic Share & Stock Broking Ltd. or Tandem Investment Pvt. Ltd. or Luminant Investments Ltd. in this regard (for non receipt of shares pledged). This itself goes to prove that a false story has been created by MGL in this regard (as regards linking the role of Tandem).
2.8 It is concluded that MGL is very much responsible for the act of MITL in off-loading the shares to the Ketan Parekh controlled entities/ OCB’s. The shares off-loaded by MITL were seen traded in large quantities by entities controlled by Shri Ketan Parekh. MGL could not give any valid justification as regards payment not received in respect of the 40 lakh shares off-loaded. CSI Technologies Ltd. shared the same address as that of MGL. They had also off-loaded shares which paved way for the significant rise in volumes.
3.0 In this regard, it is noted that you, (i) Mascon Global Ltd. and (ii) Mascon Information Technology Ltd., had off-loaded the shares to the Ketan Parekh controlled entities/ OCB’s. Such off-loading had further created artificial volume and price in the scrip. From the nature of transactions it appears that you had knowingly aided and abetted entities/ OCB’s related/ connected/ associated to Shri Ketan Parekh to manipulate in the scrip. Thus, you have violated provisions of regulation 4 (b) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 1995 read with regulation 13 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003.
3.1 You are, therefore, directed to show cause as to why appropriate action should not be taken against you under section 11B & 11(4)(b) of Securities and Exchange Board of India Act, 1992. You are required to submit your reply along with the documents relied upon, if any, to the show cause notice within 21 days from the date of receipt of this notice.
3.2 However, if you fail to respond to this notice within the aforesaid period, it will be assumed that you have no explanation to offer and the undersigned will be constrained to proceed with the matter on the basis of the documents available. In your reply also indicate whether you desire to be heard in person before the appropriate authority.
3.3 SEBI, vide circular no. EFD/ ED/ Cir-1/ 2007 dated April 20, 2007, (available at www.sebi.gov.in), has come out with guidelines for passing of consent orders. If you wish to avail the consent process, you may apply in the prescribed form given in the said Circular. Your application should be forwarded to the address mentioned in the said Circular under intimation to the undersigned.
Yours faithfully,
P. K. Bindlish
Encl.: (i) Price volume Data – Annexure A.
(ii) Price volume Chart – Annexure B.
(iii) Demat account statement of CSI Technology Ltd. – Annexure C.
(iv) Demat account statement of Mascon Information Technologies Ltd. – Annexure D.
(v) Recorded statement of Shri S. Shivakumar, Company Secretary of MGL – Annexure E.