SEBI vigilance note shows the rot within

Sucheta Dalal

An internal communication from RK Padmanabhan, the Securities and Exchange Board of India’s (SEBI) brand new chief vigilance officer (CVO), has created quite a flutter. He said that the vigilance department has been “receiving complaints alleging inter alia that some officers are in touch with other departmental officers to get certain cases settled.” And that “some officers are in contact with consultants and advocates who frequently visit SEBI.” SEBI downplayed this (reported in Mint) and called the letter an effort to ‘sensitize employees’; it also said “any attempt to infer such emails as commenting on the conduct of employees is misplaced.”

The facts are rather contrary to SEBI’s observations. Mr Padmanabhan’s points are not general, but specific. He says, “Though the complainants are not willing to come forth with corroborative evidence or lodge formal complaints, such allegations are being repeatedly brought to the notice of the vigilance cell of SEBI.” It is an open secret in the capital market that some lawyers and consultants are able to ‘swing’ consent orders on favourable terms. Also, with so many senior SEBI officials (including former whole-time members, executive directors and divisional chiefs) now representing intermediaries facing SEBI action, it is almost impossible to distinguish between friendship and cosy arrangements. But there is plenty of circumstantial evidence. The failure to act against certain entities and intermediaries, despite persistent investor complaints, shoddy investigation and paltry consent payments are some examples. SEBI would find more in the comments in response to our reports on www.moneylife.in.  The regulator gets away with this due to poor oversight by the Parliamentary Standing Committee on Finance. Also, when intermediaries benefit from lax regulation and fixing, there is no incentive to squeal on it. Fortunately, things have begun to change.