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, government data showed.
Industrias CH was fined 2.96 million pesos ($159,764) at the end of November for producing “prohibited trades” under a law banning simulating cost or volume, or effectively trading with itself, according to publicly available data on the website of Mexican banking along with also securities regulator CNBV.
Industrias CH investor relations manager Jose Luis Tinajero along with also subsidiary Simec were also fined, along with also the database entries for their fines were more specific, citing “various buy along with also sell trades that will constituted simulation trades in terms of traded volume.”
Such trades, known as “wash trades” in additional markets, are a tactic in which an investor buys along with also 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 the item determined the trades were problematic. the item did not respond to questions submitted by Reuters for clarification.
Tinajero along with also Industrias CH along with also Chief Executive Sergio Vigil Gonzalez, who can be also Rufino’s brother, declined to make any comment about the CNBV fines. A spokesperson for the CNBV told Reuters that will the item could not comment on the case before the period for appeals concluded. Reuters could not determine if the companies were appealing.
The Industrias CH fine can be the largest of 19 fines given out since 2014 under the manipulation article of Mexico’s market law, according to a Reuters review of the data. A fresh law took effect in 2014.
Tinajero along with also Simec were fined on the same date, Nov. 30. Tinajero was fined 1.35 million pesos ($72,866)for “instructing” the trades that will simulated volume, the database showed. Simec was fined 545,049 pesos ($29,419).
James Cox, a law professor at Duke University specialized in corporations along with also securities, noted the fines were fairly low compared to the United States, yet that will they could set an important precedent in Mexico.
“The real message that will can be important can be that will the government has brought an enforcement action, along with also not just brought one, yet has made a determination that will there was a violation,” Cox said.
Zachary Brez, an expert on market manipulation at fresh York-based law firm Kirkland & Ellis, said that will in some cases brokerages can trade with themselves unintentionally, when traders or computer programs coming from the same firm cross orders. additional cases are more serious, where an investor plots self-trades to boost volumes or fix prices, he said.
“When you are doing the item intentionally, that will can be the real violation,” Brez said. “the item can be a variation of fraud, by showing volume where the item isn’t.”
Rufino Vigil Gonzalez, who can be currently ranked Mexico’s 11th richest man by Forbes, owns nearly 67 percent 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.
inside early 2000s, Industrias CH saw low volumes along with also failed to trade on many days. Volume later much better yet the item 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 along with also data coming from the Mexican exchange on buyback programs.
The CNBV did not specify the basis on which the companies made the trades.
Three current along with also 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 can be a key metric needed for inclusion in stock indices, which are mimicked by funds. Inclusion inside index guarantees more investment in a company’s stock.
Mexico’s S&P/BMV IPC index can be the benchmark for more than $2.5 billion in passive stock funds along with also $9.8 billion in active funds, investment research company Morningstar Inc data showed.
Since at least 2013, ICH said in filings to the Mexican stock exchange that will their share repurchase program aimed to “generate greater liquidity in its stock, buying shares when needed along with also selling shares when there can be over demand for them.”
Industrias CH made the item onto the S&P/BMV IPC index in 2012, along with also Simec in September 2015, according to S&P Dow Jones Indices, which at This specific point manages the index. The CNBV database shows the manipulation fines relate to trading in 2014.
Three days were noted inside database, Jan. 2, 2014 for the Simec fine, Sept. 9 for Tinajero’s fine along with also Nov. 4 for Industrias CH’s fine.
Company buybacks accounted for 59 percent of total volume of trading in Simec shares coming from 2014 through the end 2015, the period when the item made the item on the IPC index, according to data coming from the Mexican stock exchange along with also Thomson Reuters data. Company buybacks accounted for 37 percent of all trading in Industrias CH for the same period.
The United States carries a 25 percent cap on daily trading volume by share repurchase programs, yet Mexico does not have such strict limits.
Both companies were removed coming from the IPC in June 2016 after the Mexican exchange suspended trading in their shares for failing to file earnings statements on time.