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.
The company was fined the stated amount last November for making “prohibited trades” under a law banning simulating price or volume, or effectively trading with itself, according to publicly available data on the website of Mexican banking and securities regulator CNBV.
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 Reuters that it 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 is 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 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)for “instructing” the trades that simulated volume, the database showed. Simec was fined 545,049 pesos ($29,419).
Rufino Vigil Gonzalez, who is 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 company’s websites.
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. Inclusion in the index guarantees more investment in a company’s stock.
Mexico’s S&P/BMV IPC index is the benchmark for more than $2.5 billion in passive stock funds and $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 their share repurchase program aimed to “generate greater liquidity in its stock, buying shares when needed and selling shares when there is over demand for them.”
Industrias CH made it onto the S&P/BMV IPC index in 2012, and Simec in September 2015, according to S&P Dow Jones Indices, which now manages the index. The CNBV database shows the manipulation fines relate to trading four years ago.