On establishing the fact of market manipulation in the shares of OAO Zhivoy Office (Zhivoy office, OJSC)
The Bank of Russia has established facts of market manipulation in the ordinary shares of OAO Zhivoy Office (Zhivoy office, OJSC; hereinafter the Shares) on ZAO MICEX Stock Exchange (MICEX SE, CJSC; hereinafter the Exchange) over the period from 13 January 2014 to 6 January 2015.
OAO Zhivoy office presented itself as a supplier of goods for “comfortable and bright” office work. OAO Zhivoy office arranged an active advertising campaign in the internet and print media, which encouraged institutional and private investors to invest their money in the ordinary shares of the company. According to the issuer, supplementary issue of the Shares was arranged to attract funds for further business development.
Supplementary Shares were offered to the public over the period from 3 July 2013 to 8 July 2013 in the ‘Innovation and investment market’ sector on the Exchange at the price 129 rubles per one Share, while net assets accounting per one Share was slightly above 1 ruble. A total of 4 000 000 Shares (comprising 33% of OAO Zhivoy Office enlarged share capital) were underwritten for the amount over half a billion rubles. Major purchasers of the Shares during their underwriting were companies interconnected with OAO Zhivoy Office: OOO Priboy (Priboy, LLC), OOO Modern (Modern, LLC) and OOO Vershina (Vershina, LLC).
The said legal entities acquired the Shares using borrowed funds which they received from an offshore company. OAO Zhivoy Office paid back the loan within one day through the interconnected entities. Thus, the underwriting of the Shares did not result in attracting real money despite of the issuer’s official announcement.
The Bank of Russia, in the course of its investigation, established that the trades qualified as Share market manipulation, were executed by two group of entities connected to OAO Zhivoy Office. Seventeen individuals and one entity, all of which were clients of various professional securities market participants comprised the first group (hereinafter Group 1). The Second group was comprised of three legal entities that acquired the Shares during their underwriting, and one individual (an employee of OOO Spens (Spens, LLC) which is a subsidiary of OAO Zhivoy Office), all of them being clients of AO investment company Eltra (investment company Eltra, JSC; hereinafter Group 2).
AO investment company Eltra was a market maker in the Shares. Along with that, trades in the Shares on the Exchange were executed solely by an authorized employee of AO investment company Eltra only across the accounts held by the entities comprising Group 2. The above mechanism was created by the top management of AO investment company Eltra and it was not suppressed by authorized persons of the above investment company. The Bank of Russia detected the trades qualified as non-market maker trades, and these trades were qualified as market manipulation in the Shares.
The above-mentioned entities executed trades, which resulted in substantial deviation of the demand, price and/or volume of the Shares, mainly with each other by prior agreement, inter alia with a view to creating artificial Share market and misleading other market participants regarding the Share price.
Thus, the entities connected to OAO Zhivoy Office were at least one of parties to 87% of the on-Exchange trades in the Shares over the relevant period, and 56% of the total Share trading volume were executed by these entities with each other.
Along with an artificial functioning of the Share market, a part of a supplementary issue was underwritten by a third party (a real investor).
OAO Zhivoy Office as well as interconnected legal entities and individuals were credited by commercial banks wherein the exchange-traded shares of OAO Zhivoy Office were acting as collateral. At present OOO Spens (Spens, LLC), one of the main subsidiaries of OAO Zhivoy Office, is under bankruptcy procedure. The issuer’s Board of Directors has taken a decision to hold an extra meeting of the shareholders, whereat one of the agenda issues raised will be OAO Zhivoy Office liquidation.
The actions undertaken by Group 1 and Group 2 as well as by AO investment company Eltra are qualified as market manipulation in the Shares pursuant to Article 5, Sections 1.2 and 1.6 of Federal Law No.
Based on the result of the investigation, the Bank of Russia has taken a decision to revoke licenses of professional securities market participants engaged in broker and dealer activity held by AO investment company Eltra as well as to cancel qualification certificates of professional securities market participants held by employees of AO investment company Eltra involved in market manipulation in the Shares. The Bank of Russia has taken measures, in relation to other entities involved in Share market manipulation, prescribing to refrain from any further activities similar to those indicated herein. The Bank of Russia has recommended the Exchange to consider delisting of the Shares.
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20.10.2016 00.00.00