$2.6 Trillion Fund Taken for a Ride
Recently, India’s market regulator, the Securities and Exchange Board of India (SEBI), uncovered a troubling case of market manipulation involving the global fund Capital Group. Capital Group, a Los Angeles-based investment manager with a portfolio worth $2.6 trillion in global equity stakes, was targeted in an elaborate scheme that resulted in the illegal siphoning off of millions of dollars in profits.
The scheme involved exploiting sensitive trade information. Capital Group had enlisted the help of Rohit Salgaocar, a Singapore-based intermediary, to facilitate trades in India. Salgaocar allegedly leaked information about Capital’s trades to a network of insiders, including a trader named Parekh, who would then buy or sell shares ahead of Capital’s orders to make a profit.
At the heart of the scandal is Parekh, who was previously banned from the Indian markets for his involvement in a financial scam in the early 2000s. SEBI has now banned Parekh once again and ordered him, along with others involved, to return $7.8 million in illicit profits. Communications between Parekh and Salgaocar, mainly through WhatsApp, revealed a trail of vital trade information that was exploited for personal gain.
In response to these findings, SEBI has barred Parekh, Salgaocar, and several others from trading in the Indian market and required them to return their illegal gains. However, the brokerages that handled Capital’s trades are not under investigation as they had commission-sharing agreements with Salgaocar, not directly with Capital. Capital Group has stated that it was unaware of the misuse of its trading information and is not being investigated for any wrongdoing.
This case highlights concerns about the integrity of India’s equity markets, particularly in handling large orders. Unlike other global markets where large trades can be negotiated discreetly, India’s market screen is often flooded with substantial orders that leak in advance, creating opportunities for insiders to take advantage. Public leaks in the Indian markets are common, with industry insiders using cryptic terms to refer to large funds, giving traders an edge but putting large investors at a disadvantage.
SEBI’s investigation has revealed significant evidence, but addressing information leaks and preventing front-running in the market remains a priority. This case underscores the importance of maintaining market integrity and preventing fraudulent activities to ensure a fair and transparent trading environment for all investors.
