Finding stock broker Deepak Jhunjhunwala guilty of indulging in price rigging and manipulation in Twenty First Century (India), market regulator bars him from taking up any new assignment for a month; will not clarify what this means
In an unusual order against a stock broker, the Securities and Exchange Board of India (SEBI) has banned broker Deepak Jhunjhunwala from taking up "any new assignment" for a period of one month for indulging in price rigging and manipulation of shares of Twenty First Century (India) Limited (TFC).
The SEBI investigation has found that Mr Jhunjhunwala had indulged in various cross-deals while trading for his clients, which created artificial volume and price rise in the scrip of TFC. However, the market regulator has failed to clarify the meaning of "new assignment" in its order. After all, Jhunjhunwala seems to run a brokerage business and does not appear to be an employer or a consultant.
Normally, a broker found guilty of stock price manipulation and other such unfair trade practices is banned from undertaking any trading activity for a certain period of time. However, this order to abstain from undertaking any new assignment is a rare and confusing call from the regulator. Moneylife sent an email query to SEBI seeking clarification on the matter, but received no reply till the time of writing.
SEBI conducted investigations regarding buying, selling and dealing in the shares of TFC from November 2001 to April 2002. SEBI investigations revealed that there was a significant rise in both the price and volume of the scrip of TFC during this period. It was trading at Rs2.50 in November 2001 and went up to Rs53 on 12 January 2002, a massive jump of about 2000% in two months! Subsequently, the price came down to Rs3.50 on 30 April 2002. SEBI found that the rise in price of the stock was not supported by any improvement in the fundamentals or any corporate action by TFC.
The investigation further revealed that the trading was concentrated between top 10 brokers who had the scrip. Data provided by CSE, revealed that the trades were structured in nature and the brokers trading in the scrip were engaged in cross-deals for their clients. These cross-deals were about 90% to 97% of the total trades entered by these brokers, among them Deepak Jhunjhunwala.
Based on these findings, SEBI initiated inquiry proceedings against Deepak Jhunjunwala under regulation 5(1) of the inquiry regulations, through an order on 11 March 2008. The inquiry officer submitted his report recommending a prohibition to take up any new assignment for a period of one month to Mr Jhunjhunwala for violating the provisions of regulation 4(a) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995. The broker apparently admitted to having encouraged the sale and purchase of securities with the object of generating brokerage.
Looking at the facts and circumstances of the case, SEBI found that "Mr Jhunjhunwala had dealt in the scrip of TFC in a manner detrimental to interest of investors. Such acts may threaten the market integrity and orderly development of the market and call for regulatory intervention to protect the interest of investors."
New Delhi: Rajya Sabha Member of Parliament (MP) and former telecom entrepreneur Rajeev Chandrasekhar has questioned the spectrum issues raised by Tata Group supremo Ratan Tata while reminding him that his group company was a major beneficiary of the same, reports PTI.
Accusing Tatas of adopting double standards, he said in an open letter to Tata that “By virtue of dual technology—according to the CAG—your company has caused a loss to the exchequer to the tune of about Rs19,074.8 crore.”
Tata had recently said that old GSM operators were holding excess spectrum free of cost and had demanded a full fledged enquiry into allotment process from 1999 onwards when the new telecom policy came into effect.
Mr Chandrasekhar said Tata Group was one of the major beneficiaries of recent telecom policy by getting GSM spectrum out of turn while 343 applicants are still waiting.
Tatas reacted sharply to the open letter and said it was surprisingly devoid of facts and was meant to sensationalise matters. None of the issues are based on facts as they exist on the ground.
“Tata Teleservices Ltd has always followed government policy and regulations and has applied for any service only after the government has allowed the same,” Tatas said in a statement.
In fact, Mr Chandrasekhar said that TRAI had recommended on 11 May, 2010, that no more UASL licence with bundled spectrum can be given. This means that these 343 applications will never be processed and will never see spectrum.
The Tatas put in their dual technology applications three weeks after the 575 applications for second generation (2G) were received out of which 122 were given licences, 110 rejected and 343 were kept in abeyance, he said.
“You (Tata) will accept that this seems to be a case of arriving late, forming a new queue, jumping the priority and accusing others of getting priority on spectrum allocation and meets your point of out-of-turn allocation of spectrum.
“I am sure the 373 applicants who were rejected for no fault of theirs, will agree—while the Tata Group has sold its equity for billions of dollars to NTT Docomo based on its out-of-turn GSM allocation on dual technology policy,” he said.
As also on hoarding of spectrum by old GSM operators, a charge labelled by Ratan Tata, Mr Chandrasekhar said that TTSL perhaps holds more spectrum (combined CDMA and GSM) than any other operators and still serves least number of subscribers.
In response, Tatas said TTSL applied for dual-technology only after it was announced and was the first and only legitimate applicant, but still the company is yet to get spectrum in Delhi and 39 other key districts in nine telecom circles.
The company even followed the policy of WLL in letter and spirit, and shifted to Unified Access Service Licence (UASL) only after the policy was announced by the government, TTSL statement added.
Ispat Industries’ spokesperson writes to Moneylife denying closure of Nagpur plant due to cash crunch. However, the company has yet to give current production details
Over the past few days, Moneylife has reported that Ispat Industries, faced with a massive cash crunch, has been forced to shut down operations at its plant in Dolvi, Maharashtra, and that it was subjected to massive countrywide raids by the revenue intelligence wing of the Central Board of Direct Taxes (CBDT). The company spokesperson has now sent an elaborate 'clarification' to Moneylife, contesting some parts of our report. This clarification raises a few more questions, which we have sent back to Ispat, but have not heard from the company till the time of writing.
Ispat had closed down its electric arc furnace (EAF) in Dolvi, Maharashtra, which has a capacity to make 3.3 million tonnes of steel and also the cold rolling and galvanizing mill at Kalmeshwar, near Nagpur, due to an acute cash crunch. However, the spokesperson says that the Dolvi plant was supposedly shut down due to upgradation and the cold rolling plant at Kalmeshwar plant has been fully operational all this time, according to the spokesperson. We asked Ispat if it would specify the last week's production at this plant? We have not received a response from the company till the time of writing.
Ms Monaesha Pinto, vice-president, corporate communications, Ispat Industries stated in the clarification, "We have undertaken a technical upgradation of the facilities at our steel complex at Dolvi, District Raigad, Maharashtra, which involves their additional integration and harmonisation. To facilitate this, keeping in mind prevailing market conditions, planned periodic shutdown was preponed to November 7, 2010, to coincide with upgradation. All these activities are in the normal course, though they have stretched beyond the original timelines due to underlying/inherent technical intricacies." Sources tell us that production has not, in fact, resumed at the Dolvi plant.
To the statement by the spokesperson that "We have undertaken a technical upgradation of the facilities at our steel complex at Dolvi, District Raigad, Maharashtra, which involves their additional integration and harmonisation", Moneylife asked whether the company knew when this upgradation at Dolvi would be completed and when the plant would resume operations? We have not got a reply about this either.
Moneylife had reported how the struggling company was attracting generous funds from leading banks and institutions despite gross mismanagement on the part of its promoters. We wrote that the State Bank of India (SBI), in a brazen attempt at preventing its loan from being classified as a non-performing asset, had recently sanctioned a further Rs130 crore to the company, adjusting Rs30 crore against earlier dues. However, the company has refuted this report, while accepting that there have been delays in repayment. "Our company has also been fulfilling its obligations to its lenders, though there are some delays. Our company has not been sanctioned any new credit facilities by the State Bank of India," the spokesperson said.
Apart from SBI, IDBI, IFCI and ICICI Bank are also among the prominent lenders to the company, who have a charge on the entire fixed assets of Ispat Industries. Pedder Realty Pvt Ltd is an independent entity of the company. The property held by the company in a residential apartment at Pedder Road, Mumbai, has been mortgaged in favour of the lenders. Moneylife had mentioned that the sale of flats is pending since 2006 and that the flats would have been snapped up, but for the fact that the owners want a huge component in cash. The spokesperson mentioned, "Pedder Realty Pvt Ltd is in the process of completing the sale of the residential flats comprising the property at Pedder Road, Mumbai. The allegation that the promoters of our company seek a 'huge component in cash' appears entirely mischievous, and is perhaps made with an intent to malign their standing".
Moneylife had also stated that the entire promoter holding of the Mittals was to be pledged to the lending institutions, but far from getting tough with the promoters, the lenders agreed with their plea to reduce this to 95% of their holdings and not create a 'pledge' in favour of the lenders. The company has clarified, "In accordance with the stipulations under the Corporate Debt Restructuring mechanism approved for the company, the promoters of our company were required to pledge 95% of their shareholdings in the company.
Accordingly, 95% of their shareholdings have been pledged by the promoters in favour of the lenders. There has been no relaxation, whatsoever, in the form of submission of non-disposal undertakings by the promoters, and this allegation is entirely baseless. The promoters of our company had proposed to subscribe to a preferential issue of equity share warrants to the extent of Rs233 crore. The necessary approval of shareholders has already been obtained by the company. The promoters have already subscribed an amount of Rs18 crore towards the preferential issue of equity share warrants. Balance subscription is expected to be shortly received from the promoters."
However, the fact remains that Ispat is in dire straits, as is evident from its financials. Ispat has been making continuous losses for the past many years and in the September quarter again it reported a massive loss. In the last quarter, the company lost Rs332 crore compared to a loss of Rs79.4 crore in the corresponding quarter last year.