Sebi must crack whip to check fraud

 

 

 

The market regulator, SEBI, cracked the whip last week in the IPO scam. Cracking a whip is a twin-edged sword. The regulator must be careful not to crack it too often, nor too infrequently, but just adequately. It is not easy to get it right. In the IPO scam, SEBI needed to take some action to impose its authority, and it has.

 

The scam was one in which some 24 operators and 85 financiers connived to obtain extra allotments in select IPOs through fraudulent means. SEBI has, however, cracked the whip over 10 depository participants (DPs) asking them to ‘disgorge’ (sic) some Rs 186 crore of gains. These DPs are crying foul, since they, themselves, have not made any illegal gains (so how can they disgorge it?). Moreover, SEBI has not taken any action on the 24 plus 85 guys who did make the illicit gains, on the plea that it has no jurisdiction over them. Why, then, ask the DPs, did SEBI pass an interim order on these 24 plus 85 in April this year, barring them from transactions? Valid point.

 

The Japanese regulator, the Financial Services Agency, has jurisdiction over the market, banks and intermediaries, making it possible for it to ban a global firm like Citi from government bond auctions. Perhaps what is required is to give SEBI more jurisdiction, not only over intermediaries, but also over companies (now under CLB), investors, financiers, and perhaps, in association with RBI, over banks.

 

The investigations against the 24 + 85 being conducted by the government must be speeded up, and the guilty punished. Since preventing a white collar crime would be preferable to bolting the barn door after the horse has fled, the SEBI should encourage and protect whistle blowers.

 

It is possible that the disgorgement order may be legally challenged, and perhaps, overturned. What it would have succeeded in doing is to put a greater onus of scrutiny on intermediaries like DPs, or brokers, to know their clients better and to check documents properly. Any computer would have matched the identical addresses on the multiple forms if so programmed. All it required was a mindset that made caution an obligation.

 

The real estate boom continues to ride on the back of incessant demand for housing and availability of lots of funds. Anand Jain is raising a second tranche of $ 500 million in international markets, following a similar one raised in his Urban India Development Fund. ICICI Ventures is also raising $ 1billion in association with Tishman Speyer. Hiranandani Developers is looking at a $750 million issue on London’s AIM. Domestically, Parsvanath has successfully completed an IPO. Sobha Developers has an ongoing IPO, which looks interesting, and DLF (the mother of all IPOs), and Omaxe are in the pipeline. There seems to be enough monetary fuel to drive the real estate fire.

 

Anil Ambani is trying to raise a $5 billion fund, having put in 10% on his own, in association with investors like Soros, Temasek, Blackstone, for M&A activity. This would help unlock values, especially in companies with moribund management but unexploited assets.

 

Infosys has completed its sponsored ADS issue, pricing it at a 3.2% discount to NASDAQ price, but a 6.8% premium to domestic prices, thus benefiting shareholders who tendered.

 

With the increased float, it would qualify for, and hopefully enter, the NASDAQ 100, which, in turn, would drive the stock further.

 

The government and its coalition partners would need to take a hard look at its divestment policy.  It is loath to divest MTNL, but has willingly let it slide from a dominant position (via monopoly) to an also ran one. Bharti, which entered much later, has overtaken it long ago on all parameters, and is now the fifth most valuable listed entity in India, after ONGC, Reliance, Infosys and NTPC. Perhaps the Government should show its allies the Australian example. Australia last week sold 35% (it holds another 17% which would be sold later) in Telstra, to raise $ 11.9 billion.

 

The finance minister wails at the lack of funds to set up social infrastructure, even while sitting on assets that are continually losing their value! The Tata Steel bid for Corus has got competition from CSN and there could be a bidding war till one side blinks.  Other than the price offered, pension trustees would have a say, since, under British law, they must approve the takeover.  In that, the record of Tata Steel’s stakeholder form of capitalism could become an important factor. The Sensex dipped by 230 points on Monday but pulled back immediately. It ended the week at 13703 for a weekly gain of 274 points (2 %). Wait for a dip.

 

 

10 depository participants have been asked to ‘disgorge’ gains from the IPO scam

 

But operators and financiers who connived to obtain extra allotments through fradulent means remain untouched

 

The regulator should encourage and protect whistle blowers to prevent white collar crimes

 

It is possible that the disgorgement order of the Securities and Exchanges Board of India may be legally challenged