New York: San Francisco-based hedge-fund Passport Capital Llc. has put portfolio manager Dipak Patel on leave after Indian stock market regulators accused him of tipping off two people in advance of his trades.
The Securities and Exchange Board of India, or Sebi, indefinitely barred Dipak Patel from trading after finding that he informed Kanaiyalal Baldevbhai Patel about his planned investments from January 2007 and January 2009, according to a May 29 statement by the agency.
Kanaiyalal Patel and his associate, Anandkumar Baldevbhai Patel, netted Rs1.12 crore by placing orders ahead of Passport India Investment (Mauritius) Ltd, the regulator said.
Cracking down: The Sebi headquarters in Mumbai. The stock market regulator has indefinitely barred Dipak Patel from trading. Abhijit Bhatlekar / Mint
If such conduct did in fact occur, it took place without Passport Capital’s knowledge and contradicted Passport Capital’s established policies and procedures, the firm, which manages $2.4 billion (around Rs11,350 crore), said in a 5 June email.
Sebi barred Kanaiyalal Patel, Anandkumar Patel and Bhoomi Industries Ltd, in which they hold partnerships, from trading until further notice. The market regulator ordered Passport Capital to conduct an internal inquiry and submit a report within 30 days. The firm placed Dipak Patel on leave on 31 May pending the probe.
Passport Capital’s $272 million India fund, which Dipak Patel has managed with the firm’s founder, John Burbank III, returned 41% in May and 39% in the first five months of the year, according to an investor letter. The fund, which invests in Indian companies, sank 67% in 2008 after surging 77% in the previous year.
Dipak Patel, 37, based in San Francisco, declined to comment, as did Kanaiyalal Patel when contacted on his mobile phone. Calls to Anandkumar Patel’s mobile phone went unanswered.
Sebi said Kanaiyalal Patel and Anandkumar Patel are related.
The agency said trading and telephone records provided evidence of front running, a practice in which a trader executes orders for his own account, taking advantage of prior knowledge of a transaction expected to influence the price of a security.
Hedge funds are private, lightly regulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate in profits from money invested.
(Pooja Thakur in Mumbai and Christine Harper in New York contributed to this story.)