Mexico’s securities regulator has imposed one of its biggest fines ever for market manipulation on steel company Industrias CH, owned by billionaire Rufino Vigil Gonzalez.
According to a government data, Industrias CH was fined 2.96 million pesos (159,764 dollars) at the end of November for making “prohibited trades” under a law banning simulating price or volume, or effectively trading with itself, Mexican banking and securities regulator CNBV website stated .
Industrias CH investor relations manager Jose Luis Tinajero and subsidiary Simec were also fined, and the database entries for their fines were more specific, citing “various buy and sell trades that constituted simulation trades in terms of traded volume.”
Such trades, known as “wash trades” in other markets, are a tactic in which an investor buys and sells a security at the same time to create the illusion of greater demand.
Providing limited details on its website, the CNBV did not explain why the company was simulating trading volume or how it determined the trades were problematic.
It did not respond to questions submitted by Reuters for clarification.
Tinajero and Industrias CH and Chief Executive Sergio Vigil Gonzalez, who is also Rufino’s brother, declined to make any comment about the CNBV fines.
A spokesperson for the CNBV told the Media that it could not comment on the case before the period for appeals concluded.
The Industrias CH fine is the largest of 19 fines given out since 2014 under the manipulation article of Mexico’s market law, according to a the Media review of the data. A new law took effect in 2014.
Tinajero and Simec were fined on the same date, Nov. 30. Tinajero was fined 1.35 million pesos (72,866 dollars) for “instructing” the trades that simulated volume, the database showed. Simec was fined 545,049 pesos (29,419 dollars).
James Cox, a law professor at Duke University specialized in corporations and securities, noted the fines were fairly low compared to the United States, but that they could set an important precedent in Mexico.
“The real message that is important is that the government has brought an enforcement action, and not just brought one, but has made a determination that there was a violation,” Cox said.
Zachary Brez, an expert on market manipulation at New York-based law firm Kirkland & Ellis, said that in some cases brokerages can trade with themselves unintentionally, when traders or computer programs from the same firm cross orders.
Other cases are more serious, where an investor plots self-trades to boost volumes or fix prices, he said.
“When you are doing it intentionally, that is the real violation,” Brez said. “It is a version of fraud, by showing volume where it isn‘t.”
Rufino Vigil Gonzalez, who is currently ranked Mexico’s 11th richest man by Forbes, owns nearly 67 per cent of Monterrey-based Industrias CH, which he took over in 1991.
The company acquired Guadalajara-based steel maker Simec in 2001, according to the companies’ websites.
In the early 2000s, Industrias CH saw low volumes and failed to trade on many days.
Volume later improved but it got a significant boost by the company’s share repurchase program since at least 2013, according to a Reuters comparison of Thomson Reuters data on volume and data from the Mexican exchange on buyback programs.
The CNBV did not specify the basis on which the companies made the trades.
Three current and former officials at Mexico’s stock exchange said unusual trading in Industrias CH around 2014 drew the attention of exchange officials, who believed volumes were manipulated to keep the company on Mexico’s S&P/BMV IPC index.
Significant volume is a key metric needed for inclusion in stock indices, which are mimicked by funds. (Reuters /NAN)