UBS case: Will M/s A and X please stand up

Written by fe Bureau | New Delhi | Updated: May 31 2012, 16:27pm hrs
Hercule Poirot would be proud of this plot. In the middle of 2010, two top officials of Sebi flew with one Mr X to London to help investigators at the UKs Financial Services Authority (FSA) identify a fictitious account held by one Mr A at a UBS branch there. The FSA perhaps suspected Mr X and Mr A were one and the same in the world of shadowy money trails. In London, FSA questioned Mr X in the presence of the two Sebi officials. Mr X claimed he had no connection with Mr As UBS account, where money was regularly getting deposited after sale of shares from a Mauritius-based FII sub-account operated by the Anil Ambani group entities.

After their return to India, the Sebi officials wrote a confidential report on Mr Xs London interview. The matter was closed. Sebis current top brass doesnt even know the identity of Mr X, because confidentiality was offered to Mr X when he was taken to London. The only two officials who know the identity of Mr X are the two Sebi officials who accompanied him, and both have left the regulator. Sounds curious, doesnt it, that even for internal records, the identity of Mr X is not mentioned in the Sebi report

The identity of Mr X who has emerged as the key character in the FSAs case against a former UBS employee may not have been disclosed in the UK Upper Tribunals recent order. Only two ex-officials of Sebi Former Sebi Executive Director KN Vaidyanathan and director Pradnya Sarwade know who is Mr X, since they travelled with him and witnessed the interrogation. While former Sebi member KM Abraham was mandated to travel with Mr X he appointed the then Sebi executive director KN Vaidyanathan instead. It was finally Vaidyanathan and Sarwde who travelled to London with Mr X. Thus, Vaidyanathan and Sarwde are the only two officials who know the identity of Mr X. This has led to a situation where neither the current Sebi chairman UK Sinha nor any official in the current dispensation know about the identity of this mysterious person.

The role of Mr X and Mr A is at the core of the case involving former UBS employee Sachin Karpe, who handled the accounts of Anil Dhirubhai Ambani Group (ADAG), which also finds mention in the tribunal report. The ADAG has since settled the matter by paying a consent decree of R50 crore to Sebi in the matter where the companys own funds were allegedly routed back into the domestic stock market through the Mauritius route.

The crux of the case is as follows: Karpe, who was a wealth manager in UBS, sold shares from a Mauritius-based fund account Pluri Cell E belonging to ADAG, and deposited the money in customer account A in UBS London. The Account A did not have any interest in Cell E and ADAG was not aware of the payments that were made to Customer A. The money was routed to the Indian stock market from the Indian accounts using the foreign institutional investor route, something which is not permitted in law.

The tribunal report says that by September 2007 and January 2008, Karpe ordered three redemptions totaling $8 million from Pluri Cell E but the proceeds were not credited to the beneficial holder which was ADAG, but to Mr A, who did not have any interest in the Cell E fund.

There wasno connection between Cell E or its beneficial owner, Reliance ADAG, and the Customer A account; Customer A did not invest in Cell E. Reliance ADAG was not aware of the payments that were made to Customer A, the Tribunal has observed.

However, the tribunal has not concluded that Customer A account is not beneficially owned by Mr X. All it has said is that the transactions in Customer A account were not a result of instructions from Mr X.

We base no conclusions on Mr Xs denial that he was beneficial owner of Customer A. We, in common with the FSA conclude, as a fact, that no instructions had been given by Mr X as regards the many Customer A transactions, the tribunal has noted.

No one knows who the Customer A account belongs to. It was here that Mr X from India was called to help identify whether Account A belonged to those who owned Pluri Cell E the logic being, why would anyone put the money from the account in someone elses account if there was no connection

However, Mr X neither owned up the account nor was able to identify Account A. The key to the riddle now may lie with the two former Sebi officials.