Ex-BSE Chief cleared of insider trading charges

Sebi official holds Rathi guilty of violating brokers’ code of conduct

Our Markets Bureau

Mumbai, Oct 3: The Securities and Exchange Board of India (Sebi) enquiry officer probing the involvement of former BSE president Anand Rathi in the stock market crash of March 2001 has held three firms, in which Mr Rathi is director, guilty of violation of the code of conduct under stock brokers regulations.

The Sebi official has also recommended that Mr Rathi be restrained from being associated with any of the capital market-related institutions for a period of two years.

Mr Rathi and his three firms were, however, cleared by the Sebi official from the charges on three regulations — insider trading, prohibition of fraudulent and unfair trade practices and portfolio managers regulations.

The enquiry officer has recommended a penalty of suspension for a period of nine months with retrospective effects from March 12, 2001 on the three firms namely; Anand Rathi Securities Pvt Ltd, Rathi Global Finance Ltd and Rathi Capital and Securities Pvt Ltd, owned by Mr Rathi.

However, these are recommendations, and the final decision in this regard will be taken by the Sebi board which will deliberate on the reply filed by the Rathi group and will take the final decision soon.
No one in the Rathi group was available for comment.

These firms were banned from undertaking any fresh business of broking/sub-broking as they were suspended from trading since March 12, 2001.

The Sebi official has also recommended that it would be just and fair to adjust this period also while recommending the penalty. That means the suspension on these firms will come to an end from December 12, 2001.

Mr Rathi and his three firms were not cleared by the enquiry official of the charges of violation of code of conduct under stock broker regulations. The official has stated in the show-cause notice sent to Mr Rathi that the instance of seeking price sensitive information from the surveillance department has eroded the confidence of investors in the fair, transparent and impartial working of the stock exchange, in particular and securities market in general.

Sebi enquiry officer’s report said, “It is not clear whether any trading was done on the basis of information obtained by Mr Rathi and therefore it cannot be said with certainty that the said trading by Mr Rathi and his companies had been done on the basis of said information. Therefore there is no violation of Sebi (insider trading) Regulations 1992.

It also said, “There is inadequate material to show that this particular information was used for any trading by Mr Rathi or his companies. Further, the preliminary investigation also does not clearly indicate the use of the information for artificially depressing or increasing the prices of the scrips. Therefore there is no violation of Sebi (prohibition of fraudulent and unfair trade practices relating to the securities market) regulations, 1995”.

As reported earlier by The Financial Express, the report has cleared another group company Navratna Capital and Securities Pvt Ltd (NCSL) stating that the firm is under the control of the Gupta family and not under the Rathi family and hence no penalty is recommended on NCSL.