SEBI on Friday barred fugitive businessman Vijay Mallya from accessing the securities market for three years for illegally routing funds into the Indian stock market between January 1, 2006, and March 31, 2008, using his UBS bank accounts in London. The former liquor baron has also been restrained from associating himself with any listed entities for three years.

Mallya had used a sub-account Matterhorn Ventures, a foreign institutional investor (FII), as an investment vehicle to indirectly trade in scrips of his own group entities in India — Herbertsons and USL. The amounts paid to Matterhorn Ventures were routed by Mallya through various beneficiary accounts with UBS to the Indian securities market.

The FII was shown as a non-promoter public shareholder in the shareholding pattern of Herbertsons, whereas Matterhorn Venture’s holding of 9.98 per cent shares actually belonged to the promoter category.

“The noticee has resorted to making investments through the FII route by masking his identity under the garb of an FII to the detriment of the interest of shareholders of Indian companies. The FII regulations are not meant to serve as a conduit for Indian entities to invest or reinvest in India by using their bank accounts held with overseas accounts or by using their capital stashed abroad,” the SEBI order said.

Modus operandi

Bayside, Suncoast and Birchwood — the three accounts opened with UBS — had transferred a total amount of $6.15 million to Venture New Holding (VNHL) whose beneficial owner was Mallya. VNHL further transferred this amount to Matterhorn Ventures for subscription to one of its share classes. Matterhorn Ventures was found to be a registered sub-account of an FII – Matterhorn Advisory Singapore Pte that operated during the investigation period.

The amount transferred by VNHL to Matterhorn was used to purchase the shares of Herbertsons. Further, Matterhorn acquired 9.5 lakh shares in Herbertsons on February 28, 2006, and March 3, 2006, through block deals. Subsequent to the merger of Herbertsons with USL, Matterhorn Ventures was allotted 6,33,333 shares of USL in exchange to 9.5 lakh shares of Herbertsons in the ratio of 2:3 on October 27, 2006.