Pyramid saimira , a victim of SEBI’s own corrupt officials !
Posted Aug.27, 2010 in Media, SEBI
Numerous innocent small investors have lost money in Pyramid saimira theatre. The main reason being SEBI’s Ban. SEBI is being unfair on Pyramid saimira promoters and investors.
Have a look at report by Moneylife.
It is a fortnight since our report, and nearly three months since the Securities & Exchange Board of India (SEBI) discovered that its own manager in the investigation department was responsible for sending out the ‘forged letter’ to Pyramid Saimira, the Chennai-based entertainment company, asking it to make an open offer at nearly four times its ruling market price. Forgery is a serious, non-bailable, offence under India’s criminal laws, yet SEBI seems more keen to protect its official!
SEBI’s investigation links its official to Nirmal Kotecha, former co-promoter of Pyramid Saimira, whose many dummy accounts to manipulate several shares, attempts to con the media by faxing a false news report and, now, bribing the regulator, have all been exposed. He is barred from the capital market, but Business World (26th July) lists him only after Rakesh & Rekha Jhunjhunwala in a list of investor billionaires. His wealth: Rs2,492 crore. If SEBI is vigorously trying to fix wrongdoers, nobody has told Mr Kotecha about it.
In contrast, Pyramid Saimira, once India’s largest theatre chain with global operations, is crippled and is facing several winding-up petitions. It has lost an appeal before the Securities Appellate Tribunal (SAT) and the Supreme Court. Both these were before we broke the news that the forged letter emanated from SEBI itself and the officer responsible had even instructed the courier agency to delay delivery so that Mr Kotecha could take full advantage of the price surge that occurred. More importantly, SEBI has never bothered to cancel the trades based on the forged letter, allowing Mr Kotecha and gang to retain the profits! Should a regulator be allowed to enrich scamsters and put a company out of business?
On 26th July, the SAT ruled in favour of a company called India Capital Markets and set aside an ex-parte order of the regulator that has virtually stopped its business. There, too, SEBI adopted a dubious strategy of instituting a surreptitious second inquiry, when its own inquiry officer recommended a mere censure.
Yet another example of SEBI’s capricious inaction is in the case of MCX-SX, which, finally, dragged the regulator to court since it would neither grant nor reject its application for a licence to start equity trading. Instead, the company was subjected to a series of media leaks, mischievous distortions and insinuations to suggest that it is ineligible. MCX-SX has almost openly alleged that SEBI’s planned (in)action was aimed at favouring a rival exchange.
Behind the Curve
When it comes to investor protection, SEBI as well as the bourses behave like the police in Bollywood movies—coming in only for the last scene. But, unlike in the movies, there is no hero to protect Indian investors. The consequence is a dramatic decline in the investor population from 20 million (1992) to eight million (Swarup Committee 2009). CMIE puts the number even lower—at 920,000 households investing directly in equity and just two million households in mutual funds at the end of December 2009.
The good news is that the regulator appears to have been aroused from its sleep, now that the retail investor is heading toward extinction. Consider this. Moneylife has been pushing for some standardisation in the power of attorney (PoA) that investors sign with brokers since 2006. Former SEBI chief, M Damodaran, refused to standardise it; after several years of abuse, which probably saw several lakh investors exiting the market, SEBI accepted the need to work on a standard PoA.
For a decade, we have argued that demat charges levied on investors are too high. SEBI’s Primary Market Advisory Committee also agreed that companies could be asked to bear part of the demat charges, especially companies which had been suspended or seemed on the verge of folding up. Investors in these companies continued to pay demat charges without a clue on whether the investment should be written off, while converting the shares to physicals would involve additional costs. All suggestions to help investors were ignored, especially when CB Bhave, the present SEBI chairman, headed the National Securities Depository Ltd (NSDL) which was then a near monopoly. Those days, NSDL used the cushion provided by high depository charges to subsidise the Tax Information Network and other businesses into which it wanted to expand. A month ago, SEBI under Mr Bhave, advised the two depositories to offer ‘no frills’ demat accounts to investors with restrictions on value and volume of transactions! Well, it is a step forward.
Stock exchanges, especially the National Stock Exchange (NSE), which has a near monopoly, is no different. For a decade, we argued with its managing director, that its arbitration process was one-sided and anti-investor. Since there was no appellate mechanism, brokers who were more conversant with the rules and procedures were disinclined to settle. On 28th July, after prodding from SEBI, it is finally planning to put such a mechanism in place. This is a beginning, but a lot more needs to be done to ensure that investors can actually access the arbitration and appeal mechanism without incurring huge costs. Unless this is done, investors would prefer to write off their losses and exit the capital market. It required over 12 million investors to exit before we saw the first sign of realisation among regulators of what is hurting the investors.
Targetting Chakrabarty
On 5th August, Moneylife (www.moneylife.in) wrote that Dr KC Chakrabarty, deputy governor, Reserve Bank of India (RBI), may have been the victim of a deliberate set-up, leading to the public humiliation of having his key portfolios drastically cut. His crime: he allegedly expressed an off-the-record view that the monetary policy should have been more aggressive in hiking interest rates and hinted that the finance ministry really dictated decisions. The statement rocked the bond market and led to a vitriolic report by a news wire, which was picked up by the media, triggering RBI’s action. We find that other RBI governors have got away with worse, without attracting such humiliation.
For instance, if Dr Chakrabarty is to be dubbed a ‘loose cannon’, why forget Dr YV Reddy’s tumultuous tenure? He is correctly applauded for saving India from a financial crisis, but he probably wouldn’t even have become the RBI governor if he were dealt with as firmly as Dr Chakrabarty has been. In August 1997, as deputy governor RBI, Dr Reddy created a huge storm in the currency market when he told forex dealers at a Goa conference that the rupee was overvalued. Nobody demanded that he be gagged or have his powers curtailed. In fact, he went on to become RBI governor, despite an uneasy relationship with one of his bosses.
In January 2005, as the RBI governor, he caused another panic when he sent markets into a downward spiral by saying that foreign institutional investment (FII) must be capped. The then finance minister made a statement to cool the market down and the governor had to issue a hasty retraction. Let us also not forget that Global Trust Bank was treated with kid gloves by the RBI under YV Reddy, leading to its ultimate collapse in 2004. The Bank was given a clean chit in 2002.
In 1997, RBI governor Dr C Rangarajan divested the then deputy governor SP Talwar of his key portfolios, which were later restored during governor Dr Bimal Jalan’s tenure. But it was a quiet move, not the public humiliation that Dr Chakrabarty was subjected to. Dr Rangarajan was apparently incensed about Mr Talwar’s decision to grant the provisional banking licence to the dubious CRB group which went bust. Clearly, the only way to resolve all this is to bring more transparency to RBI’s decision making, by publishing its policy discussions with a time lag. It will ensure that policy-makers are allowed to have divergent views without fear and irrespective of the final policy decision.