Sucheta Dalal :CURRENT ACCOUNT (MoneyLIFE Issue 15th Jan 09)
Sucheta Dalal

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CURRENT ACCOUNT (MoneyLIFE Issue, 15th Jan 09)  

December 31, 2008

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Fake letters, deliberate rumours and vicious bad mouthing of a company or its management are not new to capital markets around the world. That is exactly why regulators invest in expensive software to track price manipulation and frame regulation to nab the culprits. Even by these dirty standards, what happened with Pyramid Saimira is rather bizarre for the number of players involved. But, first, the facts.
Pyramid Saimira, which is in the entertainment (mainly multiplex) business, was sent a letter, ostensibly written by the regulator Securities Exchange Board of India (SEBI), asking the company’s chairman, PS Saminathan to make an open offer within 14 days to acquire 20% of the public holding from minority share-holders at Rs250 per share. This would have cost him around Rs140 crore for an alleged breach of the takeover code by acquiring over 5% equity in a year. The SEBI letter turned out to be a fake.
In October 2008, Saminathan had indeed announced plans to buy a 25% stake from his co-promoters NC Ravichandran and Nirmal Kotecha at Rs200 per share. It would increase his holding to 46.9%. One newspaper whose report was based on the fake letter also said that SEBI had questioned Saminathan’s move to buy out his co-founders at Rs200 when the market price was a mere Rs60. More about this later.
On 22nd December, many journalists were emailed copies of the fake SEBI letter. One journalist says that his paper checked with SEBI officials who said that it appeared genuine because the style, language and reference details were in line with its official orders. A big part of the problem is that SEBI has no proper system of dealing with media queries even when they are addressed to the Communications Manager. It also had a tendency to ignore queries. For instance, it has not deigned to respond to us on the Pyramid Saimira issue or issue of rot in fixed maturity plans which formed our cover story of 4 December 2008 issue.
On 23rd December, the com-pany confirmed having received SEBI’s letter, although it had denied it earlier. Approximately 50 hours later, the regulator suddenly announced that the letter was a fake and it was inquiring into the matter. All hell then broke loose. Business Standard took the unprecedented step of apologising for the report and naming its source. It turned out to be Ashok Jainani, a former journalist with a chequered career. He had once walked away with official papers from the desk of a SEBI executive director. Jainani has, however, written an angry letter to the newspaper and claims that he received the email from media sources.
Mr Saminathan called a press conference where he mentioned that a PR agency was involved in circulating the fake SEBI letter to the media. The agency has suspended the employee, who says he merely forwarded a message from a google-group from his personal email account. It has also offered to cooperate with SEBI’s investigation. This employee is also a former journalist.
Now, there is another twist. The seeming authenticity of fake letter was its official sounding language and a computer generated reference number that is usually found on all SEBI letters. We learn that this is a genuine reference number that had been issued by SEBI’s Kolkata office on some other letter. Officials believe that the number would make it easy for the regulator to narrow down those involved in the fraud.

The ease with which a fake SEBI letter could cause turmoil in the stock market has raised questions about SEBI’s communication process too. Speed and transparency are of essence to track down those responsible. Meanwhile, the market grapevine points fingers at the promoters of Pyramid Saimira too. They allege that one side was involved in pushing up the price while another in hammering it down. Curiously enough, the Pyramid Saimira stock has crashed and hit the lower circuit barrier for four days running and dropped from Rs67.90 on 22nd December to Rs49.55 on the 26th. More curiously, the stock had doubled in just two weeks from Rs35 (its lowest for the year) on 2nd December, to the high of Rs67.90. Was this then an old market saga – a bull-bear tussle? Was the letter generated by desperate bear operators who were getting cornered by the upward spiral? Nothing else explains why the price has continued to drop even after SEBI denied issuing the letter and ordered an investigation. Nirmal Kotecha, one of the promoters has sold 8.2 lakh shares over November and December 2008. Chairman Saminathan was a buyer – he picked up over seven lakh shares over the same period. Was Saminathan then sending a bullish price signal by offering to buy out his partners at such a premium to the market price? As they say on Wall Street – bulls make money, bears make money, pigs get slaughtered!

-Sucheta Dalal

-- Sucheta Dalal