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SEBI dons a new role

Rediff Business Bureau

As stock market indices plummet, soar, dive, zoom, dip, spurt, market regulator SEBI (Securities and Exchange Board of India) seems convinced the time is right for it to sharpen its teeth. In recent times, the market watchdog has bitten, hard and proper, errant promoters of companies and stock-brokers, in the process earning both praise and advice for restraint.

According to some brokers, SEBI is assigning itself the role of a crusading activist. "When the BSE Sensex was in touching distance of the 5,000 mark, SEBI cautioned investors that the market was overheated. But when the Sensex was under the 3,000 mark this time last year, why did it not encourage investors to go buy?" asks a broker.

SEBI is unfazed. The battering it had received in the media when scam after scam rocked the country, when investor after cheated investor lambasted it for failing to rein in fraudulent companies, is still fresh in its memory.

So it has decided that, like Caesar's wife, it has to be virtuous and seen like one. SEBI, it is said, has taken a leaf out of the books of those it regulates -- the bourses. Recently, the Bombay Stock Exchange introduced the Z group of shares, listing companies with a suspect track record. The well-publicised move was welcomed and appreciated widely.

SEBI, it seems, has decided to publicise the nature of stockmarket crimes and the penal action such crimes will invite from it. Regular dissemination of such news, SEBI believes, will spread awareness among the investing community, deter prospective frauds and help clean up the market in the long run.

Investigations. Surveillance. Enforcement. SEBI's new buzzwords. The net effect is that investors (read patrons of financial publications) get to read whodunits -- thrillers, if you will -- a novelty in the ocean of dull stock quotes and drab corporate results. "With a little bit of hard work and luck, SEBI could become middle class India's answer to John Grisham," chuckles a broker, referring to the watchdog's meticulously detailed narratives of financial crimes, some of which were committed years ago, and its own punitive measures.

"Abnormal price rise accompanied with large volume was witnessed in the scrip of North Star Gems (India) Limited or NSGIL on the Stock Exchange, Bombay during March-June 1996. The price of the scrip touched a high of Rs 176 at the BSE and in the auction/close-out, the price went up to Rs 209. In view of these, an investigation was initiated by SEBI into the alleged price manipulation in the scrip of NSGIL. The BSE suspended indefinitely the pending auctions in the scrip.

"Meanwhile, pending investigations, the exchange was directed by SEBI to freeze the auction/close-out proceeds.

"Investigations revealed that Dr Amit Shah, in connivance with promoter of NSGIL, Dr Piyush Mehta, and with the assistance of other persons/entities, cornered majority of the floating stock of the scrip (more than 90 per cent). Dr Amit Shah also dealt in the scrip at the BSE in substantial quantities with an intention to create an artificial market and manipulate the price of the scrip.

"As a result of investigations, enquiry proceedings have been initiated against the brokers involved. Pursuant to investigations and on the basis of prima facie involvement of Dr Amit Shah and other associated persons and entities, show-cause notices were issued to them.

"However, no one except Dr Piyush Mehta responded to these show-cause notices. Another opportunity to show cause was also given to these persons/entities in the form of personal hearing before the Chairman (D R Mehta) on December 4, 1998 and December 31, 1998. However, this opportunity was not availed.

"On careful consideration of all the records, relevant material and findings of the investigation, these persons/entities were found guilty of: a. creating an artificial market; b. manipulation of the price of the scrip of NSGIL. This is in violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with the SEBI Act.

"Chairman, SEBI, has issued the following directions under Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 read with Section 11B of the SEBI Act:

• Dr Amit Shah and Dipak Dalal have been prohibited from dealing in securities including NSGIL and accessing capital market for a period of five years. They were also found involved earlier in price manipulation of scrips of Dhanalaxmi Lease & Finance and Kamakshi Housing respectively. They have been debarred from dealing in securities for a period of three years and two years. This prohibition for five years will run concurrently with the earlier directions.
• Dr Piyush Mehta has been prohibited from dealing in securities including NSGIL and accessing capital market for public subscription for a period of three years.
• Mihir Ghelani has been prohibited from dealing in securities for a period of five years. He was also found involved earlier in price manipulation of scrip of Kamakshi Housing and has been debarred from dealing in securities for a period of three years. This prohibition of five years will run concurrently with the earlier directions.
• Yashwi Engineering and its directors -- namely, Dhamistha K Panchal, Meena N Panchal, Raju Panchal and Prakash P Bhat -- and Ekta Ceramics and its directors -- namely, Rajendra V Panchal, Sailesh Bhatt and Nilesh N Barot -- have been prohibited from dealing in securities for a period of three years.
• Girish Shah has been prohibited from dealing in securities for a period of three years.
• Gaurav Shah, Alka Shah and Dharmendra Barot have been prohibited from dealing in securities for a period of two years.

"The aforesaid orders would come into force with immediate effect."

Well, that is, a sample.

The frequency at which these 'whodunits' are published is increasing, sometimes appearing twice a week, according to market sources.

On August 26, three leading brokers -- GNH Global Securities Limited, Mahico Limited and Star Share and Stock Brokers Limited -- engaged in the alleged price manipulation of BPL, Videocon and Sterlite scrips in June 1998, were suspended by SEBI for a varied period ranging from 12 months to 36 months.

The magnitude of the manipulation by these brokers was so large that it led to a sudden payment crisis on the Bombay Stock Exchange and National Stock Exchange.

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