THE DIGI OFFER HAS ENDED AT A PRICE OF 40 LEI/SHARE, AND THE LISTING IS SCHEDULED FOR MAY 16 Piperea makes accusations of market manipulation in the DIGI IPO

The Financial Oversight Authority (ASF) needs to urgently refer the matter to itself concerning a potential market manipulation, in the case of the use of bank guarantee letters in the Digi Communications IPO, which inflated demand, leading to an oversubscription of over 2700% on the retail tier, lawyer Gheorghe Piperea thinks.

He indicated the provisions of law no. 297/2004 concerning the stock market and the EU Regulation no. 596/2014.

According to Art. 244, item 5, of the law no. 297, market manipulation means trades or trading orders that send or might send false signals that mislead when it comes to the demand, the supply or the price of financial instruments.

According to the European Directive, the following types of activities represent market manipulation: "(a) the making of a transaction, the issuing of a trading order or any other type of behavior that: (i) provides false or misleading indications concerning the supply, the demand or the price of a financial instrument or of a related spot contract (...)".

Apparently the ASF is focusing on this case.

Some people think that in the case of DIGI, the false indications concerning the demand pertain to the fact that investors did not actually want to buy as many shares as they did.

Mr. Piperea thinks that the bank guarantee letters have been abused in the subscription process: "Their use resembles that of anabolic substances by athletes. Even the banks that were underwriters in the IPO granted loans, which places them in a conflict of interest. The issue of the manipulation of the stock market arises. The law No. 24/2017 stipulates huge fines. Even manipulation attempts are punished, and the fine can reach 275,000 lei per day".

The subscription through bank guarantee letter or through a statement concerning the settlement commitment issued by the custodian agent was allowed, according to the prospectus.

Some banks have granted loans for subscription in the DIGI offer, for a fee, meaningless that at a certain amount of the loan, as subscriptions advanced, the commission would have invalidated the benefit of the discount granted to small investors. Other banks, however, apparently gave their customers that instrument for free, which generated a discrimination for those who did not use such guarantees.

"It all boils down to the bank's greed again, who wanted to make money not just off the intermediation fee, but by granting loans for subscribing in the IPO as well", lawyer Piperea went on to say.

The oversubscription through the use of loans has also generated discontent in the case of previous offers, but never to such a degree.

In 2007, the National Securities Commission levied fines and issued warnings to 16 brokerage firms which violated the prospectus in the IPO of Alumil. The offer, conducted in December 2006, was oversubscribed 16 times, with a total of 465 million lei, but the CNVM found that some brokerage firms had subscribed on behalf of their customers even though the latter did not have the full amounts in their account.

In 2009, brokerage firm Raiffeisen Capital&Investment (RCI) won in the High Court of Cassation and Justice a lawsuit requesting the canceling of a 15,000 lei fine levied by the CNVM against it, after the latter found some irregularities in the way the Alumil IPO was performed.

This time, all the details of the Digi offer have been submitted for approval to the Dutch Oversight Authority, because DIGI Communications, the majority shareholder of RCS&RDS, is a Dutch company. The ASF announced that all it can do is, eventually report certain irregularities to the Dutch authority or to the ESMA. The ASF has to approve the admission for trading of DIGI on the BSE.

Another aspect which the ASF has to analyze is the fact that Raiffeisen Bank published, on Wednesday night, on the BSE website an announcement concerning the transfer of a block of shares in the offer from the institutional tier, to the retail tier, and then replaced the announcement discreetly, without any erratum.

The first version of the Raiffeisen communique no 17/10.05.2017 announced a number of 1,522,088 shares had been transferred from the big investor tier to the retail investor tier of the Digi offer, and the second, a number of 1,087,206 shares.

Thus, retail investors that do not receive a guaranteed allocation will receive 5.11 shares for 100 subscribed shares.

The DIGI offer ended at a price of 40 lei /share, meaning that retail investors who subscribed in the first five days get a discount of 7% (to 37.2 lei/share), and the others, a discount of 3% (to 38.8 lei/share).

Trading in the class B shares will begin on the BSE on May 16th 2017.

Serghei Bulgac, CEO of DIGI, said: "We are very pleased with the strong response coming from retail and institutional investors, from the very moment we made the announcement about the intention to get listed on the Bucharest Stock Exchange. This IPO represents an important step in the evolution of DIGI, as investors thus get access to an attractive leader in the industry, with a stable structural growth. We feel that the strong support coming from investors is a testimony to the solidity of our existing activities and of our future growth outlook. We eagerly await the admission to trading which is scheduled for May 16th".

The DIGI offer was perturbed by an announcement of the National Anti-Corruption Department, concerning the beginning of the prosecution against Ioan Bendei, vice-president and Executive Administrator of RCS&RDS, for money laundering and bribery, and against Mihai Dinei, board member of the company, for complicity in offering bribes and complicity in money laundering. DIGI subsequently announced that RCS&RDS was also a suspect in the case. Under these circumstances, some institutional investors decided not to participate in the offer, which affected the price the IPO closed at, which was closer to the lower end of the subscription price range (38-56 lei/share).

Gheorghe Piperea thinks that the risk that the criminal case of RCS&RDS can cause affects the whole capital market.