OREANDA-NEWS. July 15, 2015. The Bank of Russia established facts of repeated market manipulation with regard to trades in Mechel OAO common stock on the Moscow Exchange.

In the course of its examination the Bank of Russia found out that on 13 November 2013 and 28 February 2014 Mechel OAO common stock prices significantly dropped during the trading sessions on the Moscow Exchange as a result of concurrent large calls for sale. On 13 November 2013, several traders offered more than 14.5 million shares for sale, and on 28 February, the offer exceeded 18.5 million shares, making 59% and 43% of the total stock trade on the indicated dates respectively.

Non-standard offers for stock sale were initiated by 8 Russian professional players, and also by 10 foreign brokers (investment companies trading at their customers’ instructions). Meanwhile, due to interaction with foreign counterparts and due to information provided by the Cyprus Securities and Exchange Commission, the Bank of Russia learned that all the non-standard offers were made in the interest of one entity, i.e. UFS Investments Ltd with the involvement of UFS CAPITAL LIMITED, a foreign broker company.

Over the same period of time, UFS Investments Ltd and UFS CAPITAL LIMITED sold depositary receipts on the common stock of Mechel OAO on the New York Stock Exchange (NYSE).

Acting on behalf of UFS Investments Ltd, UFS CAPITAL LIMITED struck deals to sell shares on the basis of offers with the lowest selling prices, after which during subsequent trading days reverse deals were made on behalf of UFS Investments Ltd.

It was also established that on 14 November 2013, UFS Investments Ltd made deals with shares during the trading session on the Moscow Exchange, and that the obligations of the parties to these deals were performed on account and for one and the same entity — UFS Investments Ltd.

According to Clauses 3 and 5 of Part 1 of Article 5 of Federal Law No. 224-FZ, dated 27 July 2010, ‘On Countering the Illegitimate Use of Insider Information and Market Manipulation and on Amending Certain Laws of the Russian Federation’ activities conducted by UFS Investments Ltd and UFS CAPITAL LIMITED are qualified as stock market manipulation.

The facts of stock market manipulation became possible because of improper discharge by the foreign depository (custodian) UFS CAPITAL LIMITED of its obligation to safekeep shares belonging to its legitimate owner. UFS CAPITAL LIMITED disposed of the shares at its discretion, namely, without obtaining required instructions this company posted shares belonging to their legitimate owner to the custodian account of UFS Investments Ltd. After this, the shares were sold at organised trades.

The stock market manipulation was conducted with the involvement of a Russian professional securities market participant — IC Arbat Finance (the former name of the company was IC UFS Finance), which set up a confusing scheme for the accounting of stock rights. Market manipulation is a gross violation of the Russian legislation requirements, and also a breach of financial market participants’ professional ethics. Besides, IC Arbat Finance created obstacles to examinations, and submitted contradictory and misleading information to the Bank of Russia.

In the period from 25 September 2009 to 25 June 2015, the sole executive body of IC Arbat Finance was Elena V. Zheleznova, which is also the sole founder and managing director of UFS CAPITAL LIMITED, and a beneficial owner of UFS Investments Ltd, UFS CAPITAL LIMITED and IC Arbat Finance. The actions of E.V. Zheleznova directly led to stock market manipulation by UFS CAPITAL LIMITED and UFS Investments Ltd. Besides, on many occasions E.V. Zheleznova did not provide information requested by the Bank of Russia.

As a result of repeated and gross violations of the legislative requirments on countering the illegitimate use of insider information and market manipulation, and also Russian securities legislation, the Bank of Russia decided to cancel the qualification certificate of financial market specialist issued to E.V. Zheleznova and to cancel the licences of a professional securities market participant issued to IC Arbat Finance.

The Bank of Russia passed over information on the violations of the Russian laws and, possibly, of the laws of the Republic of Cyprus commited by UFS Investments Ltd and UFS CAPITAL LIMITED to the Cyprus Securities and Exchange Commission. The licences of the investment company UFS CAPITAL LIMITED had been canceled earlier by the said commission.

The Bank of Russia submitted information on actions constituting the stock market manipulation and bearing the evidence of criminal offence to the Investigative Committee of the Russian Federation for consideration and procedural decision making.