Thursday, July 18, 2013

Sebi gets teeth to crack down on suspect investors

Govt okays amendment to Sebi Act to give it powers to track phone records, regulate ponzi schemes
In a move that is expected to help track rampant insider trading in the Indian stock market, the government on Wednesday allowed securities regulator Sebi to monitor call data records of investors and conduct searches at companies suspected of wrong doing.

The Cabinet, which met in New Delhi, also approved a proposal to amend the Sebi Act allowing Sebi to regulate ‘chit fund’ schemes, Reuters quoted Praful Patel, a cabinet minister, as saying.

“This (tracking call records) is a very good step. It will elevate the powers of Sebi in insider trading cases closer to those in the United States,” said J N Gupta, a former Sebi executive director and founder of proxy advisory firm Stakeholders’ Empowerment Services (SES).

The famous insider trading cases involving Rajat Gupta, former McKinsey managing director, and hedge fund manager Raj Rajaratnam, in the US were nailed through detailed analysis of call records.

“This is a significant step. In insider trading cases, what usually so happens that price-sensitive information is passed on by one person to another, mostly through telephone calls, when a corporate event is about to happen. Information is passed on either to buy or sell securities. Sebi can now ask telecom companies for call records of suspected persons on specified days,” said M S Sahoo, member of the Institute of Company Secretaries of India (ICSI) and former wholetime member at Sebi.

Sahoo said till now telecom companies could refuse to provide such information citing them as “confidential and invasion of privacy” of persons.

The move to get call records will also help Sebi in all other investigations also, said Gupta of SES. Among others, the Sebi chairman would have the powers to authorise conducting of search and seizure.

At present, Sebi can conduct search and seizure only after approval from the chief metropolitan magistrate, but this provision is often seen as delaying proceedings and hampering the confidential nature of probe.

The move to allow Sebi to regulate chit funds is another big step to end several hundreds of ponzi schemes across the country.

Companies such as Sahara group of Subrato Roy to West Bengal-based Saradha group have been collecting thousands of crores from millions of investors without proper permission or scrutiny. Lack of clarity on who would regulate such money-mobilising schemes helped such activities to spread rampantly.

“Chit funds were considered ‘orphans’ on the question of regulatory body,” Gupta explained.

Sebi has been booking several firms which run the so-called ‘Collective Investment Schemes’, which lure investors to put money in multi-level marketing schemes or schemes that invest in holiday membership schemes (Rose Valley group), ‘potato purchase’ scheme (Sumangal Industries) etc.

On Wednesday, for instance, Sebi prohbited Sai Prasad Properties, which have been collecting money from investors in Mumbai and Goa, among others, from raising funds under any of its schemes.

“There was no clarity on who would regulate such schemes. Till now, in some cases it will fall with the Companies Act. Even State governments come in the way,” explained Sahoo, adding that the amendment will help Sebi tackle the menace of ponzi schemes.

Gupta of SES, however, said it will be difficult to regulate and curtail ponzi schemes completely until there is effective coordination between the Reserve Bank of India and Sebi. “RBI has to create sensitivity across all the bank branches. Banks should be alerted to report any sudden suspicious transactions in any accounts,” he said.

Sebi has been seeking an overhaul of regulations as well as mandate for a long time, given the changing nature of the securities market in general, and newer tools being used by manipulators to take gullible investors for a ride, in particular.
By Rajesh Abraham   
Jul 17 2013 , Mumbai

No comments:

Post a Comment