Scam Of 2000

Updated: Nov 29 2002, 05:30am hrs
Astonishingly, the Securities and Exchange Board of Indias (Sebi) final report on the Scam of 2000 has blamed stock brokers but given a clean chit to the main corporate groups who colluded with them. Briefly, Sebi is saying that Vinay Malu of Himachal Futuristic Communications Ltd (HFCL) and the Essel group were extremely close to Ketan Parekh (KP) and his cohorts who manipulated the market along with him, but werent involved in price rigging themselves. It is saying that the two groups diverted a massive Rs 550 crore and Rs 706.4 crore to KP to fuel the rally, but that doesnt mean they were involved in it. It is almost as though the money was diverted for the mere sport of watching their scrips shoot up when KP set the capital market afire they were mere cheerleaders. That is not all; Sebi has dumped the messiest part of the investigation on to the Department of Company Affairs (DCA) and said that it will take appropriate action, if required against HFCL and others if the DCA finds violation of any provisions of the Sebi Act. The regulators contention would have been funny were it not so serious.

The irony is that Sebis inspection report has become public on the very same day that Parliament cleared additional powers for the regulator. Its final report on Scam 2000 only proves that having more powers cannot substitute a real determination to nab capital market offenders. It is a capital market truism that no sustained price ramping operation is possible without the collusion of company management. Until insider trading became a statutory offence under Sebi rules, companies had regular house brokers and made no bones about their price manipulation before important corporate announcements or annual results. The companies dictated the trading and brokers only made their money through commissions and some proprietary trades. The late Harshad Mehta changed the rules of the game in 1992. But even he did not operate without a clear understanding with a dozen odd companies to have easy access to large blocks of shares which he churned in order to sustain the ramping operation. KP in 2000 followed the same modus operandi as Mr Mehta, but with a difference. Since he had access to bank funds only towards the end of his reign (from Madhavpura Mercantile Cooperative Bank) he was even more dependent on companies whose prices he ramped up and, of course, on Global Trust Bank which acted as banker, financier and friend. But Sebi would have us believe that KP acted on his own, with the help of scores of small brokers. In 1992, the Joint Parliamentary Commission (JPC) had exonerated all the corporate houses that colluded with Mr Mehta. This time, the regulator itself has prepared the ground for exoneration. It remains to be seen if the JPC would go by Sebis clean chit or examine the facts and make up its own mind.