Rot inside SEBI: Strange warning letters to let off serious offenders

SEBI has been quietly letting off a few hundred chosen price manipulators and offenders with a simple ‘administrative warning’!

Open a newspaper and you will find lavish praises of the Securities and Exchange Board of India's (SEBI) long list of achievements and allegedly tough action against a few big corporate names. Moneylife has not been a part of this ridiculous chorus-for good reasons. We have found that SEBI has been routinely letting off a few hundred chosen price manipulators and offenders with simple 'administrative warnings', even if their actions-price manipulation, bear hammering, circular, synchronised or structured trades-have led to steep payments under the 'Consent Scheme' (without admitting or denying charges) or stiff penalties, including cancellation of registration of intermediaries, in scores of other cases.

Moneylife has access to a stack of sample 'administrative warning' letters which show that some offenders have been repeatedly let off. All SEBI letters merely say that the transactions 'give an impression' that 'they are not genuine' and ask the entities to improve systems and 'be careful in future'.
What are these administrative orders? And who is entitled to this special treatment? These administrative warnings, unlike other regulatory actions, are not reported on SEBI's website and do not have to be mentioned in offer documents and other applications.

Some orders are detailed, others seem deliberately sketchy. We asked SEBI chairman CB Bhave for the process of deciding which violations qualify for 'administrative warnings' and which ones are sent for consent or adjudication proceedings. The query was also directed to several board members and executive directors in charge of secondary markets and investigation. Despite a reminder, there has been no response. The orders have all been issued in the past three years under Mr Bhave's rule.

Consider these.
* On 15 June 2010, four brokers indulging in synchronised trades and creating artificial volumes in Godawari Power & Ispat Limited were let off. The four-OPG Securities Pvt Limited, Inventure Growth and Securities, Prashant Jayantilal Patel and HJ Securities manipulated the shares in August 2008 for a set of common clients (Deepak Desai, Dhiren Panjwani and Rhidhi Panjwani). Inventure has been let off at least thrice and there is no explanation for the leniency.

* On 15 June 2010, SEBI also let off three other firms for creating 'artificial demand' in the shares of Nandan Exim in 2006. These were Religare Securities for clients Tejas and Devan Patel who created a fake impression of liquidity in the scrip by placing large 'buy' orders below market price and updating them frequently. Inventure was also part of this racket and the third was Anand Rathi Securities.

* On 19 September 2008, repeat offenders were let off for ramping up the price of Saarc Net Limited in 2004-05. They were: Action Financial Services, Sunidhi Consultancy Services, Adolf Pinto and Pilot Credit Capital. Sunidhi Consultancy again got away with 'structured' deals in Moncon Investments through a 25 July 2008 order.

These orders suggest that SEBI's investigation, adjudication and enforcement action depends on the whims of investigation officials. SEBI does not feel that it owes the public an explanation for who is punished and who is let off.

For a more detailed report of this bizarre situation please read the next issue of Moneylife to hit the stands on 25th February.

Comments
Rajendra J Thacker
1 decade ago
Nation is being ruled by looters. Criminals are law makers. Judges are selfish, dishonest and anti national. Judges do not wish to declare wealth. They want to keep them aloof Lokpal Bill provision. No need to talk abourt Public Servants of our nation.

The whole lot is rotten so such things are going to happen. I blame our judiciary system for it. Judges ar not willing to punish elected person or public servant and rich people.

Only solution is create awareness and get deserving people elected.
Nagesh KiniFCA
1 decade ago
27 comments makes for an interesting reading.
SEBI, as a Regulator, has not been in any position in stemming the rot in corporate India nor has the Accounting Regulator, the Institute of Chartered Accountants of India.
What have either or both of them done on Satyam fiasco? Both are equally responsible for glossing it over for 7 long years.
US legal system has heavily penalised Satyam auditors, our system is still dragging its feet? Why?
SEBI lets corporates like ADAG go with peanuts as "settlements" when the Directors ought to sent behind bars.
The Supreme Court has rightly commented that position and wealth will be disregarded in the 2G spectrum.
The need of the hour are proactive Regulators for the Corporate India and Accounting profession to pursue penal action more vigorously.
nagaraj
1 decade ago
May be, Mr.Bhave and his team were doing unpopular activities viz., harassing the genuine investors and the Distributors, just to distract public attention from their unetical practices in dealing with the erring companies and other agencies. The Finance Ministry should appoint a commission of inquiry without much delay, to investigate SEBIs actions/decissions during Bhave's tenure. There may be many skeletons in SEBI's cupboard which may endup with another scam. Present Chairman should initiate necessay steps and screen all mis- deeds of the previous regime.
RAJESH
Replied to nagaraj comment 1 decade ago
inventure growth is big fraud they cheat and harras people they buy judges all setting is done
Aangelo Extross
1 decade ago
Moneylife, please do not give up! Place before the new Chairman the querries and reminders which were put to his predecessor and Board Members and demand a time-bound reply. If it is not forthcoming use the RTI Tool.
Let's look at it from another angle - the sorry episode of the Harshad Mehta Scam (early 1990's), meticulously tracked by Ms Sucheta Dalal, led to far reaching reforms in the Stock Market and the birth of modern electronic trading platforms and share depositories. Hope a similar silver lining appears on the horizon.
nagesh kini
1 decade ago
I beg to differ with Pandarinath Prabhu.
Sucheta and Debashish are better off with their own Moneylife with no constraints and restraints shackels on expressly their views freely and frankly.
Please read Khushwant Singh's autobiography to know newspaper owners drop editors like him, MV Kamath and Arun Shourie.
Ramnath goenka was no different.
The Times group and ET have lost their credibility. There are more ads.paid for edits than articles.
I've switched over to Free Press Journal and Hindu Business line who have more readable content.I'd advise others to try this out and let me know of their experience.
Ravindra Shetye
Replied to nagesh kini comment 1 decade ago
I agree with Mr. Kini 110%. The sole objective of Times of India and Economic Times is to milk the advertising market and mint money. You can see the increasing weight of the newspaper (Jairam Ramesh to note the Environmental damage). The same is true about most of the Media Channels. The weight and the number of pages of ToI has tripled within last 10 years, the Contents remaining the same. And like the very old rule, the bad coins drive the good coins out of circulation.
I will also stop ToI and start Free Press from next month.
Ravindra Shetye
1 decade ago
This should be the first riority for Mr. Sinha. A lot of ready data is already available if he can just read last 25 issues of Moneylife.
Maybe it is a good idea if you can send him these 25 issues as a present. If not please send the bill of the price of these 25 issues to me. I mean to be serious.
Rajendra J Thacker
Replied to Ravindra Shetye comment 1 decade ago
One should not expect milk from bulls. Any IAS, IPS, IFS and elected represented belongs to same class. Today even judiciary is also part and parcel of it.

Only one solution to all problems that is being faced by citizens is that one among us should have power to decide. This is possible only if all active citizens become politically active and see that none of the old political party or its candidate wins. One among us should be elected and all of us will have to create awareness about it during election.

I do not find any other solution to presents problems being faced by us.
pandharinath prabhu
1 decade ago
Ms. Dalal , you need bigger platform to bring to the notice of the people such cases. please move back to Times of india . Now you can think of going to ET Now , people like you are needed over there then only people will take a note of such frauds
RAMESHKUMAR
1 decade ago
MR BHAVE &CO TALKING SO BIG ABOUT INVESTORS ,BUT THEY ALL HAND IN GLOVE WITH ALL THIS FRAUDS,SIMPLY THEY MISUSE POWER TO TROUBLE INNOCENTS IN THE NAME OF REGULATIONS.I HOPE MR SINHA WILL BRING SOME RELIEF TO ALL MF PARTICIPANTS SINCE HE KNOWS THE PRACTICLITY OF MF INDUSTRY&CLEANE UP THE SYSTEM DAMAGE DONE BY BHAVE &CO. WE ALL GLAD WE GOT RID OF DICTATOR LIKE BAHVE &CO ,THERE THOUSANDS OF AFFECTED PEOPLE CURSE BHAVE ALWAYS. RAMESHKUMAR
Rajan Manchanda
1 decade ago
For SEBI to be effective ,discretionary powers should be abolished. For every lapse a penalty should be leived depending on the gravity of the fraud / crime / misconduct. This will ensure the investors are kept well informed. It will act as a detterent for the fraudsters as the misdeeds will get reported. Administrative warnings are like telling tales of Gabbar Singh to small children.

For all departments to function effectively,it appears they must report directly to the Supreme Court !
Multiple agencies like CBI are required for handling all frauds reporting to Supreme Court as that seems to be the only way some timely action will be acheived.
sk gupta
1 decade ago
Good Information.
tony
1 decade ago
SEBI is on UPA govt. pat. There is no surprise.
FIRSTCHOICEIPO
1 decade ago
SEBI does nothing. Examine the listing day price manipulation of IPOs. Artificial volumes are created to defraud the gullible investors. The classic example is Bedmutha. No action has been taken against any one. Long live SEBI!
GS
1 decade ago
The moot question is who regulates the regulator?
How do we monitor the acts of omission and commission of the regulator in a civil society?
In UPA regime we have a spate of regulators - Telecom, Pension, Insurance, and now we have a Council on top of financial services.
But what we now need are a set of guiding principles and values by which the regulator's action (or lack of it) could be judged.

BTW, what are your views on UTI chief (so far the regulated entity) being appointed the SEBI chief (the regulator)? Strange quirk of fate or something else?

Rajendra J Thacker
1 decade ago
Good information. No body has fear of doing wrong. Judicicary is defunct and thus such instances.

Wrongdoers have confidence that any wrong action will not be punished and is rewarded economically.

Decision makers on complaints have become partners of economic profit made by wrongdoers. It is an opportunity for regulating authority to become economically well.

Crux of all such problem that our Nation face is due to defunct Judiciary.

All doors of justice are closed. Close nexus between People's representatives, Public servants and Judges.

Let us be a part of Governance by being active in politics.
makarand patankar
1 decade ago
what else can we expect from sebi which is part and parcel of thugery.

prime minister who is supposed to be fellow of LSE, equates telecom loot with subsidies offered to poorest, sebi ar anybody cant do anything different.
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