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.
* 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.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam